Given the business climate over the past few years, debt has become something of a dirty word. And, on the whole, this is a healthy attitude. As a general rule, debt is a necessary evil for all businesses – large or small – rather than something to be taken for granted as the natural order of things. In fact, many soundly-managed businesses get themselves completely free of debt. Nevertheless, debt can sometimes be a good thing if used correctly – as well as simply being necessary to maintain cash-flow etc.
Business Mortgage Debt
For example, business mortgage debt is a generally smart move, financially, given sufficient time. In other words, commercial property values generally rise more quickly than the interest rate over long periods of time. This is also a good way of building steady value in a business in the equity in the property and by avoidance of expensive leases – unless you can strike a great deal, of course, or are given some form of financial incentives.
General Business Loans
But mainly, a business loan can be “good” debt for companies which have a proven business model and are on a steady road to expansion – with a future in which they may be reasonably confident of adding value. If your ability to create good profits that far outstrip the payments on your loans, then debt can be a wise way of fueling your expansion.
But, always take professional advice in this area from older and wiser heads. We all tend to be a little too optimistic about our business prospects, particularly when things are going well. Independent advisors will be a little more balanced in their view, and on the potential pitfalls – and will be able to advise on the best debt solution if you get yourself in too deep, too quickly.
How about you all? In what circumstances in business or your personal life do you think debt can be a good (or at least acceptable) thing?
Share your experiences by commenting below!
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