Can Debt Help Your Business Grow?
By Ryan Velez
As an entrepreneur, you’re likely to focus on increasing sales in order to meet your financial goals and grow your business, but sometimes, it may not be enough to do what you need. The Network Journal recently put an article out explaining the role that debt may play in helping your business. This may be a scary concept, but if done properly, a smaller debt now can lead to greater profits later.
In basic terms, debt is a promise for you to pay back a known amount at a future, specified date. However, you will have to pay interest expenses on top of what you initially borrow. The interest rates can vary based on the length of time in business, business and personal credit history, debt term, and other factors. If you don’t have any debt, a good place to start may be a business credit card. These offer low rates and periods of interest-free purchases at times. However, this isn’t a fit for every business. Sometimes, growing a business requires equipment, workspaces, extra employees, or more. At this point, you need to consider getting a loan.
Needless to say, getting a bank loan has become more difficult since the recession, but there are things you can do to help your chances. One thing is making sure your finances are in a proper state. New businesses will often need to provide loan officers with detailed, forward-looking financial projections. The Small Business Administration and Score both offer tools to help you get these plans and documents in order. Established businesses will need to ensure that their records are up-to-date. In some cases, a client can become collateral for a loan. This may sound rather strange, but sometimes, a corporate account can lead to much more money than focusing on individual sales. Sometimes, bank officers want evidence of committed investors or key contract, and this enables you to kill two birds with one stone.
Should you not qualify for these avenues, looking for outside funding may be a potential avenue for you to get the capital you need. Use your network to try and look for potential connections and investors. Even if a contact doesn’t seem like an ideal fit, they may know someone who is. Sometimes, rather than investment, a collaboration may be in the cards as well, letting you pool your resources and expertise with someone else to go beyond what either of you could alone.