As a business leader, you know that debt can be a necessary evil to drive growth and expansion. While excessive borrowing can sink your company, strategic debt can be a powerful tool to fuel innovation, increase efficiency and boost your bottom line.
This blog will explain examples of smart financial decisions that may help your business thrive. Read on to discover how good debt can be a game-changer for your organization.
Loans from government programs
Government-sponsored debt programs provide small businesses with access to capital at competitive interest rates. These programs offer favorable terms and can help companies secure the money they need to grow.
One key benefit of these programs is that the interest on these loans can be deducted from corporate income taxes, reducing your tax liability. Additionally, in the event of bankruptcy, some agencies forgive or reduce the debt, giving your business a second chance.
Loans for a lower equity base
Debt is often cheaper than equity financing. When you raise capital through equity, you give up ownership and control to investors in exchange for their funding. Moreover, investors who want a higher rate of return can be expensive to work with.
Meanwhile, debt can be less risky and less expensive. By borrowing money for your company, you can maintain business control while keeping costs low. Additionally, with a lower equity base, you’ll have a higher after-tax profit rate, giving you more room to invest in your business.
Growing your business through smart financing
By understanding the benefits of borrowing money, you can have more options when looking for business funds. Unfortunately, taking on debts for your organization can go wrong very quickly, so consider working with experienced accountants and legal professionals. With their help, you can make smart financial decisions, structure debt agreements that benefit your business and take advantage of all available opportunities.
