What are the Advantages of Debt Financing for Your Business?
Are you thinking about debt financing for your business?
Every year thousands of business owners just like you get thousands of dollars back in tax deductions because they used debt financing to expand or improve their business.
If you’re unsure about whether or not it could help your business, read on to find out the key advantages.
1. Keep What’s Yours
When you borrow a loan to finance your business you are obligated to pay back what you owe at the appropriate time for the duration of the loan. However, the bank or the lender which you borrowed the loan from cannot take control of your business.
If you decide to use other methods to finance your business you may have to give up equity. This is usually in the form of stocks.
Debt finance helps you to avoid these pitfalls so you can keep full ownership of your business while getting the capital you need.
2. Uncle Sam Is Your Friend
One of the best things about debt financing is that it allows you to get tax deductions. This is because the financing you receive is considered a business expense, so you are free to deduct the interest payments as a tax deduction.
Needless to say, the ability to do this will give you some much needed cash and make the loan less of a burden on your finances. In order to ensure that you are doing right by your business you should hire a tax professional to ensure you don’t miss any of your benefits.
It is also a good idea to see how other companies are using the tax deductions gained from debt financing to move their business forward. You can get insight by joining professional organizations that are geared towards helping business owners grow their business.
3. Get Low-Interest Rates
There are many types of debt financing loans available. However, many of them have very high-interest rates. When it comes to debt financing loans the lower the interest rates the better it will be for you.
A Small Business Administration Loan (SBA) is a good option if you want to get low-interest rates. However, if you ask your lender for an SBA and you do not qualify for it, just remember to ask about other low-interest options.
It can be easy to get trapped in a vicious cycle of borrowing if you are having to pay out high-interest rates over the long term. If you have to pay out a loan more than one time for the month or if the way the payment is calculated is not transparent and uncomplicated then you should move on to another lender.
4. Payout High-Interest Loans
If you have been relying on more expensive forms of loans such as credit cards, line of credit or cash advances then you know the frustration of using such high-interest forms of financing.
With low-interest debt financing such as an SBA loan you can pay off those high-interest rate loans and save yourself a lot of cash. You can then use all this extra money to pour more capital into your business, so that you see more growth in a shorter period of time.
Always remember that cash advances can be detrimental to your business’ stability especially if you find yourself taking out one after another to finance your projects.
Cash advances are often the first types of loans presented to you when you go to some lenders. This is a bad sign and if this happens find another lender or resist the temptation and ask about your other options because there are many.
5. Building Your Small Business Credit Is One of The Advantages Of Debt Financing
One of the major reasons that many small businesses fold is due to a lack of capital. However, If you have good business credit then it is easy to secure debt financing when you need it.
Good business credit is one of the perks of borrowing and paying back on time. Lenders begin to trust you and become eager to give you money. In other words you become a preferred customer.
Building your business credit means that you will no longer have to depend on your own personal credit score to secure a loan. This allows you to separate your personal finances from your business finances and this is always a good thing.
6. Debt Financing To Drive Business Growth
If you know how to make your debt work for you the chances are high that your business will be booming at the end of the loan payout.
Debt financing can be used to add more inventory to your business and even to get equipment that you need. Once you start expanding your business then profit will rise and the loan will pay for itself.
Debt finance is a good way to prevent your business from getting cash strapped and stagnant. However, before you even borrow a business loan you should have a business meeting with an in house team or a financial adviser and devise a plan for using the money.
Outline your short-term goals and your long-term goals for your capital. Strategize in detail how you will go about spending every penny and set targets. Assign different persons on your staff or in your accounts department to monitor your targets, so that all the money will be accounted for at every stage of your spending.
Final Thoughts
If you are seeking ways to finance your business then debt financing is one of the best choices you can make. Debt financing allows you to expand your business quickly and easily.
Once you have expanded your business the money that you have borrowed will be easy to pay back. One of the advantages of debt financing is that the loan is tax deductible so you also get a chance to get cash back.
If you would like to learn more about how to grow your business then you should check out our website where we have lots of great content that is sure to leave you inspired.
