Debt is not necessarily a bad thing, you can use it strategically for your financial needs. If you are going to throw it in a marketing campaign, or perhaps renting property at a better location for your company to position your business for growth, always make sure the ROI (Return Of Investment) is greater than the debt.
Therefore, you will need to consider a few things before taking a loan: your business’s finances, your reason for the loan, etc before narrowing down your options.
Can business debt affect your personal credit score?
NB: Business Debt Can Affect Your Credit.
Even though your business finances are separate from your personal finances, the two can easily intertwine, which you cannot control.
Business debt will affect your personal credit score, especially when you are a sole proprietor. If you are a sole proprietor, you are the business—whatever you do personally reflects on your business, and vise versa. So, be discipline.
There are different types of loans, let’s explore these 5 common loans for small businesses:
1️⃣ Assets financing – ideal for business owners looking for funding specifically to purchase physical equipment
2️⃣ Invoice financing – for business owners with unpaid invoices who need an advance of capital to cover cash flow or other short-term financing needs
3️⃣ Commercial real estate loans – best for business owners looking to finance purchasing new or existing commercial property or renovating commercial space
4️⃣ Microloans – ideal for new or established businesses looking for a small amount of capital
5️⃣ Personal loans for business use – for newer businesses who are just starting out and need access to affordable financing
Can you take debt to your advantage?
Here are at least 2 ways to use debt to your advantage:
1️⃣ The ROI should be greater than the debt.
This takes us back to the examples we talked of earlier about marketing campaigns, rental of property, etc. It’s like taking a calculated risk. Although we can never be sure of outcomes as we rely on predictions, things like data mining and interpretation can help you take better decisions.
For instance, you can make good research about the area you are thinking of locating your business, considering the demographics, activities in the area and things as such. Also search about the property value. Should you think of relocating your business, you will at least make good profit from that – which you can also use for other parts of your business, or just throw it in your savings.
2️⃣ Don’t sell your equity.
Every business has lean time, it’s inevitable…but when that time comes, don’t sell your equity by adding more partners to, rather take a loan. Paying off debt is much easier than ending a partnership, it can get messy.
In a nutshell…
Debt is not the devil, but you MUST be discipline. First educate yourself and understand what you are getting yourself into. Debt can be expensive, set priorities and goals. Use the money wisely.