Leveraging Good Debt for Business Growth: An Entrepreneurs Guide

Written by Chioma Ugo

Don’t be afraid of debt.

Many entrepreneurs and businesses are utilizing debt to their advantage.

Understanding debt and how you can use “good debt” to scale your business is what this article is about.

When used wisely good debt can be a powerful strategy that contributes to business growth and long term business success.

What is Good Debt?

Good debt is borrowed capital that is invested into activities and or assets that generate positive returns, of course when and if this happens you enhance the overall financial health of your business.

If the benefits derived from the borrowed capital is more than the costs associated with servicing the debt then that is good debt. Bad debt is the opposite of this.

How to Maintain Good Debt?

Maintaining good debt requires a careful and strategic approach.

Here are 3 key simple tips to help your business leverage good debt for business growth:

1. Take debt when you don’t need it

As controversial as this sounds, do not only take debt when you need it. You may very well have the capital to work on your expansion project or perhaps purchase that new equipment but if the capital is affordable; take it, pay it back before time and boost your credit rating.

2. Increase the amount of debt you take over time

If you need to borrow 20,000,000 and the lender offers you half, again provided it is affordable, take it. If you use this strategy and you keep to the terms of your loan you’ll be able to increase the amounts you can access over time.

Some lenders check the amounts you’ve borrowed in the past and will not lend you a substantial amount above what you have borrowed in the past.

3. Be Responsible

Responsible management of debt contributes to a positive credit history, enhancing your business’s creditworthiness. This, in turn, can result in access to more favorable lending terms in the future.

If the activity and or asset you borrowed the business loan for is not performing as expected, review the options available; consider deploying the capital elsewhere.

If you are struggling to payback let the lender know, negotiate an alternative repayment plan if possible but whatever you do; do not go rouge!

This will prove to be more detrimental in the long run and can ruin your credit rating.

Why Debt is Good for your Business

Debt plays a crucial role in the financial landscape of business for several reasons but unfortunately very often entrepreneurs leave it until they are desperate for capital before they explore the options available.

If growth and expansion are part of your plans it is very likely that at some point you will need to access debt capital, do not be an entrepreneur who needs debt capital and can not access it because of failure to put a debt strategy in place.

By purposefully leveraging borrowed capital, maintaining financial discipline, and understanding debt, you can leverage good debt for your business growth.

If you are interested in debt capital and need assistance, our dedicated member support team is here for you. Feel free to reach out to us at help@getprospa.comor give us a call on 018890240

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