The Smarter, Faster, Easier Way to Business SuccessTM

When to Use Debt

Debt options like business loans, larger lines of credit, factoring and other forms of financing are useful when there is a well-identified means to service the debt in place.

For example, if you were opening a restaurant and you knew that the loan would go directly toward building out your operation to begin serving customers and generating revenue, a debt product makes sense.

Where debt doesn't make sense is when you are financing non-recoverable expenses, like salaries or rent. Every business has these costs, but without a very specific plan for turning those expenses into revenue, that can repay that expense, you may face serious problems.

There are a handful of debt options available to entrepreneurs very early in the company's formation, such as the U.S. Government-backed SBA loan program. While these are government-supported, they still may require the entrepreneur to provide substantial planning and resources to support the loan.

Entrepreneurs often avoid looking into debt because it feels scary and complicated. The idea of creating a mountain of liabilities that are tied to you personally and having to go through a complex process to get there doesn't sound very appealing.

Debt, however, is one of the most frequently used forms of capital used to launch businesses. Most other types of capital, like Angel Investors and Venture Capital, are most likely to be invested in just a handful of specific industries like technology and healthcare. For everyone else, a traditional loan is typically the most viable path to funding.

Buying & Selling a Business