How Much Debt is Right For Your Company?
A lot of businesses struggle with the question of how much debt they should take on. There is a delicate balance between too little and too much, and it can be hard to know which side you're on.
In order to answer this question, we must first look at what debt is. Debt can be a good thing or a bad thing for your company. It all depends on the type of debt and who you owe it to.
There are two main types of debts: secured and unsecured. Secured debts are those that generally have collateral backing them up, while unsecured debts do not have any collateral backing them up.
Credit cards, lines of credit, and small business loans are excellent examples of unsecured business debt which can be used to kickstart a project or tide you over when you need a little extra cash flow. If you are looking for a small business loan, the right amount of debt is what makes your company grow while still maintaining profitability. Keep in mind that it is critical that you become financially literate so that you do not negatively impact your business credit score.
Cash in your bank account and houses, offices, land, or other types of real estate mortgages on property owned by your company are a few examples of secured business debt.
When taking on more debt than needed, it can lead to serious cash flow problems. With so much focus being placed on paying off loans, you could easily find yourself stressed out, headed towards collections or worse case scenario, bankruptcy. Protect your credit at all costs because lenders may not be willing to take that kind of risk with you again!
It is important to weigh the pros and cons of both types of debts when deciding how much you need for your company, but it may be best to start with secured debt in order to ensure that a business will have enough money coming in from customers; otherwise, all the energy spent on growing and improving a product or service might go down the drain if there isn't any cash flow.
Please remember that repayments are also part of this equation, so make sure that they do not exceed more than 30% - 35% (or less) of monthly income after tax before taking on additional debt. As long as these numbers are within reason, then your business should be able to grow and thrive.
While it’s important to maintain a healthy balance of debt and equity in order to grow your company, you also need to make sure that the amount of money owed is manageable.
If you find yourself struggling with too much borrowing or your credit rating has taken a hit because of recent business decisions, consider hiring an experienced financial advisor who can help review your plan for managing cash flow and create recommendations on how best to reduce risk while maintaining growth opportunities.
The sooner you take action, the better off both your business and personal finances will be down the road. In addition to reviewing their own credit reports regularly-consider checking yours! It only takes about five minutes from start to finish using this link https://www.annualcreditreport.com
