When people heart about debt, they have a common notion that it is something bad, which can sometimes turn out to be evil. When it comes to business, this fear of debt is more. People find debts as one’s inability to raise sufficient cash in order to fulfill their immediate requirements. But, if being availed and managed well, debt is a real boon to businesses. There are good debts and bad debts, which you need to distinguish and understand well. Good debt can positively impact a business to help improve its financial position. All major corporations have business debt, which is a good way for businesses to earn more return on investment. Debts can also help small business owners to establish or grow their business to the next level.

When is debt good? Kavan Choksi explicates

Next, the financial consultant and business expert, Kavan Choksi tries to explain the positive side of debt and how it helps businesses grow.

Debts for business growth

You can make use of business debts (debt financing) to grow your business and increase profits. Debt is the best method to ensure needed cash flow into the business. Debts help the businesses to raise funds and scale the expansion. When a business is growing, the business owners may need more facilities, manpower, equipment, larger space, etc. With various debt-based lines of credit, they can easily find funds and facilitate growth.

Building credit score

Good credit translates to increasing your creditworthiness to avail more funds. To start with it, you can avail small business loans and make the repayments perfectly in order to slowly and steadily build your credit score. You need to practice taking loans and paying them off on time to build your credit score. A better credit score will improve your credibility in repaying loans, so more lenders will come forward to help you with fundraising.

To expand business

Sometimes, you may need funds in advance to recruit more employees or to purchase costly machinery to improve production, etc. There are various business loans and line of credit available, which you can avail yourself based on your needs. There are short-term and long-term debt financing available, which you may choose based on your needs.

Debt vs. equity

Equity financing is another mode of business funding that is different from debt financing. Equity financing is found to be the more expensive and time-taking mode of financing, whereas debt can be sourced much easier and quicker. In terms of equity financing, it may sometimes leave you short of funds than expected.

While considering debt financing, Kavan Choksi suggests that you may also consider your business forecasting. For new businesses, it is ideal to have a proper business plan and forecasting to avail debts. Several types of creditors ranging from conventional banks to angel investors may help you out with fundraising. In order to convince your business idea and ensure an appropriate return on investment, it is essential to have a realistic and comprehensive business plan in place.