Chat with us, powered by LiveChat

Should You Use Business Debt to Fund Growth?

Should You Use Business Debt to Fund Growth?

Potential Benefits of Using Debt Financing

Here are some of the possible advantages of using loans, lines of credit, or other forms of business debt to raise money to grow your company:

  • Retain ownership and control.
  • Tax deductions for interest.
  • Higher returns if successful.
  • Potentially easier to obtain.
  • Flexible repayment terms.
  • Ability to act quickly.

Risks and Downsides of Business Debt

Using loans and other forms of credit to fund growth also comes with considerable risk. Before taking the plunge, carefully consider these potential pitfalls:

  • Burden of fixed payments.
  • Risk of bankruptcy.
  • Stress and distraction.
  • Loss of flexibility.
  • Higher cost of capital.
  • Difficulty raising equity later.
  • Personal liability.

Key Situations Where Debt Funding Makes Sense

While the risks should not be taken lightly, debt can be an appropriate source of growth capital in certain situations:

  • Stable cash flows.
  • Clear path to higher profit margins.
  • Opportunity costs of waiting.
  • Tax considerations.
  • Low-cost flexible options.
  • Reasonable leverage levels.
  • Willingness to pivot if needed.

Key Tips for Managing Business Debt

If you decide to use loans or lines of credit to fund growth, adopting best practices to manage debt levels is crucial:

  • Conservative projections.
  • Monitor leverage ratios.
  • Only fund growth.
  • Build in buffers.
  • Tie debt to assets.
  • Match terms to use.
  • Reinvest conservatively.
  • Raise equity when possible.

Key Takeaways on Funding Growth with Debt

  • Taking on business debt can provide capital to fund growth plans but comes with considerable financial risks. Weigh the pros and cons carefully based on your situation.
  • Using leverage strategically makes the most sense for established companies with recurring revenue streams and clear opportunities to drive higher profitability.
  • Be conservative with projections, keep close tabs on key leverage metrics, and have contingency plans ready in case growth stalls.
  • Managing debt prudently by reinvesting conservatively, tying loans to assets, building in cushions, and raising equity when possible helps mitigate risks.

Additional Business Debt Resources

Reddit Thread on Using Debt to Fund a Business

Quora – How Much Debt is Too Much for a Growing Business

Avvo – The Legal Risks of Using Debt to Finance Your Small Business

FindLaw – Should I Finance My Small Business Through Business Loans?

Delancey Street is here for you

Our team is available always to help you. Regardless of whether you need advice, or just want to run a scenario by us. We take pride in the fact our team loves working with our clients - and truly cares about their financial and mental wellbeing.

"Super fast, and super courteous, Delancey Street is amazing"
Leo
$500,000 MCA Restructured Over 3 Years
"Thanks for helping me in literally 24 hours"
Jason
$250,000 SBA Loan Offer in Compromise
"Great choice for business owners who need a trustworthy partner"
Mary
$350,000 MCA Restructured Over 2 Years

In The Media

Delancey Street CEO discusses ways to reward employees
Delancey Street CEO discusses the benefits of franchising on Forbes.
Delancey Street CEO discusses management on AMEX.
How Do I Stop Paying An MCA Advance

How Do I Stop Paying An MCA Merchant cash advances…

What Should I Do If OneMain Financial Is Taking Me to Court?

What Should I Do If OneMain Financial Is Taking Me…

How to Wind Down a Small Business With Too Much Debt

  How to Wind Down a Small Business With Too…

Coping With Debt-Related Marriage or Relationship Problems

  Coping With Debt-Related Marriage or Relationship Problems Money issues…

When Starting a Small Business to Pay Off Debt is Risky

When Starting a Small Business to Pay Off Debt is…

Delancey Street simply gets it. You're talking to experts.
Steven Norris
Get Help Today

Ready To Get Started?

If you have questions, feel free to shoot us an email, or fill out our live chat.

Schedule Consultation