Debt can be either good or bad for businesses. Debt financing can be an important way for a business to sustain its operations and accelerate its growth. However, managing debt is critically important, and knowing when and how to pursue ways to enable getting out of business debt is essential for business owners. 

Two Types of Debt 

Good debt” is debt that is useful to launch, sustain, or grow a business. It enables a company to generate more business. “Bad debt” simply takes away funds from a company and thus hampers its growth and prosperity. Good debt can increase the net worth of a company and its future value. Bad debt doesn’t contribute to a company’s net worth. It simply gets consumed or depreciated so there is nothing left to show for it. Thus, it is advantageous for every business to enable lessening the amount it owes.

The Advantages of Good Business Debt 

The advantages of good debt financing include securing funds with lower interest rates, securing beneficial tax deductions, building and improving business credit, and securing funds to aid business growth. Good business debt makes it easier to make financing payments versus bad business debt and it offers more financing options.

Mistakes That Lead to Bad Business Debt 

Some mistakes that lead to bad business debt include failing to develop and use a comprehensive budget, not planning nor preparing for unexpected events, not raising enough working capital, accumulating too much debt, failing to record all a business’s financial transactions, not paying bills on time, growing too fast without a strong financial underpinning, and failing to change as competition and circumstances change. 

Serious mistakes can occur if company funds are applied for personal uses, spending funds for luxury items, taking out too many loans, or taking out high interest rate loans. Problems can occur when using credit cards to cover cash flow shortfalls and being inconsistent with collecting accounts receivable. Making these mistakes makes it difficult for a business to thrive.

8 Tips for Getting Out of Business Debt 

Use these 8 helpful tips: 

  1. It may be obvious, but the most direct way is to increase business revenues. That can include ramping up marketing efforts, increasing promotional incentives, freeing up excess inventory, and raising prices. 
  2. Review budgets and improve spending and accounting processes. 
  3. Reduce expenses including eliminating unnecessary spending. 
  4. Get customers to pay more quickly by improving collection processes and payment incentives. 
  5. Prioritize existing debt payments. 
  6. Refinance high-cost debt and consolidate debts. 
  7. Negotiate debt payment terms including payments to creditors. 
  8. Seek financing assistance. 

Get Expert Alternative Financing Assistance 

Contact Multiple Financial Solutions, with offices in Jacksonville, FL, and Houston, TX. We offer a portfolio of alternative funding solutions for companies that can’t get funding from banks including business lines of credit, merchant cash advances, and commercial real estate funding. We focus on businesses that have been active for 2+ years and are looking to grow to the next level. If you are facing a funding deficit, we are ready to help you.