Question

one page on why debt is good for a bussiness

Answer 1

Debt is often perceived negatively. It can suggest a lack of sufficient cash flow and an inability to fulfil your funding requirements. It also an indication of increased risk, as if you are unable to service your debt repayments, it could have dire consequences for your business.The majority of large corporations have some level of debt. It can be a great way for individuals to earn a return on their investment. And of course it is an integral part of the engine that drives the world economy. For small business owners, debt can actually provide some great benefits as long as it is managed responsibly. Some of these are discussed below:

1. Debt can help you grow your business:Many small business owners find themselves at a crossroads when facing rapid growth as they are not able to finance their expansion on their own. At this time, access to debt can be a great boon.

2. Debt is cheaper than equity:It starts with the fact that equity is riskier than debt. Because a company typically has no legal obligation to pay dividends to common shareholders, those shareholders want a certain rate of return. Debt is much less risky for the investor because the firm is legally obligated to pay it.

3. Government sponsored debt programs:This allows small business owners to borrow money, at competitive interest rates. If the business is unsuccessful, often the debt is forgiven or substantially reduced.

4. Mitigages your risk:Borrowing money can help you mitigate your own risk and reduce your asset exposure in the event that your business venture does not succeed. And although bankruptcy is rarely a good thing, it is sometimes inevitable.

5. Suggests confidence in your business:If someone is willing to lend your business money it suggests that they believe that your business has potential

7. Interest is tax deductible:The cost of debt is actually less on an after tax basis than the interest rate suggests.

However, more debt isn’t all good news. Debt requires repayment with interest. In general, if the debt isn’t repaid in a timely manner, the debt-holders can force the company into bankruptcy. That is, they can force the company to liquidate its assets to repay the debt (or, at least, as much of the debt as the company has assets to cover).

When it comes to taking on debt, all loans are not equal. It's absolutely crucial you find a lender that:

1. Understands your business.
2. Understands the logic of the loan.
3. Is willing to lend you money at a reasonable rate.
4. Is convenient.