Top 20 Destroyers of Business Value #17 – Not Optimizing the Use of Capital

Posted on February 7, 2013 · Posted in Blog

Many small business owners often shy away from credit or debt.   However, like most anything in life, debt used in moderation can be extremely beneficial, but if abused extremely detrimental. Having a small loan or an established line of credit often has some overlooked benefits.

Interest rates are near historic lows, and it has never been cheaper to borrow money. If you can obtain a loan at a competitive rate, funding your business with additional growth capital to increase profits and expand quicker can be cheaper and less risky than you think.

Another benefit of taking on a little debt is that it gets your foot in the door and can help establish a relationship with a lender. While a large loan may not necessarily be needed today, somewhere down the line your business may need a loan to fund an acquisition, capital expansion or hire additional personnel. Making payments on a small loan today can improve your business’ credit rating, increase cash flow and build credibility with an existing lender, so you can move quickly if needed.

There can also be tax advantages from the interest deductions, and the right debt-to-equity structure sends a message that you know how to manage the financing of your business.

Are you destroying value by not taking advantage of available capital or having too much debt?

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