Unless you have significant savings or support from investors, debt is often necessary to grow your business. While it can be a powerful tool, debt also poses risks and must be used wisely. In this article, we’ll explore what makes up Business Debt and share tips for minimizing it. Click Here for Affordable Liquidation Assistance
What is a Business Debt?
Business debt is any indebtedness incurred by a company or its subsidiaries, including loans, investments, lines of credit, bankers’ acceptances, surety bonds and other instruments. Generally, it excludes consumer debt such as personal mortgages and car payments.
When determining whether to take on additional debt, businesses should consider how much it will cost them in terms of interest and cash outflows. They should also calculate their debt-service coverage ratio (DSCR) to ensure that adding new debt won’t tip them over an acceptable number. This can be done using a variety of accounting software programs or through Excel or Google Sheets templates available on the Small Business Administration website.
Another key consideration is to know how to distinguish between good and bad debt. It is important to identify the types of debt that are reimbursable and those that are not so that you can avoid getting caught in a vicious cycle. Also, it is critical to have a plan in place for how you will pay off your debt. This may include reducing expenses or increasing income so you can put more money toward debt repayment.