Good Debt vs. Bad Debt

When is debt good for your business, and when is it bad for your business?

These are questions that you should be asking. The answers are what successful business owners already know.

Bad Debt

As in your personal capacity, if you incur debt, it is considered bad debt. These can take the form of a credit card or overdraft to pay for goods and services that don’t add value to your business.

If you are using your credit card to buy food at home, knowing that you don’t have the funds to pay back the credit card, this is dangerous territory.

Regularly funding items like staff salaries out of a company overdraft facility is just digging a bigger hole. Unless the staff you are paying can contribute to an increase in sales to pay back the debt.

Good Debt

If you lend money to invest in stock to complete a client job or deal or expand your company, which will lead to more significant sales in the long run, this is considered good debt.

In times like these, smaller businesses do not have the cash flow to manage a few months while purchasing stock to fulfill a job.

For example, a corporate branding business needs to buy caps and t-shirts to brand and only be paid on delivery.

They will need some bridging finance to tide them over until they get paid by the customer. Once the payment has been made, they can settle the debt. Often with little interest charged.

Companies can take a long term view of expansion and know they can service the debt and interest. They then build up their service offering can use the loan to grow the business.

These facilities can be beneficial to smaller businesses that want to take that next step and scale.

If you want to speak to one of our consultants about how Bizcash can help your company grow, get in touch.

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