Title: 8 reasons why business borrowing is smart - Pay4
Headings: 8 reasons why business borrowing is smart
8 reasons why business borrowing is smart
09 Nov 8 reasons why business borrowing is smart
Is business borrowing a sensible option for you?
DSCR = Net Operating Income / Total Debt Service
Good debt and bad debt
Leveraging debt
When business borrowing is smart
1. Facilitating growth
2. Seizing opportunities
3. Managing seasonal fluctuations
4. Optimising your supply chain
5. Improving customer terms
6. Helping to secure future credit
7. Keeping equity in your business
8. Clearer, more disciplined financial focus
Sensible borrowing for a smart strategy
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Content: 6. Helping to secure future credit
If your business is experiencing good growth, and profitability is healthy, then you should still consider business borrowing as a strategic element of a longer term plan. Even if on the surface, your business does not appear to require it. Companies such as Google and Amazon are ‘debt-free’, thanks to their strong cashflow and profits, yet this is still considered inefficient – they finance the company with retained earnings. As companies such as these mature and their growth inevitably slows down, debt will likely become an increasingly important source of funding. This is where having a strong credit history of well-managed debt will help your business to secure borrowing should it become necessary once growth slows. 7. Keeping equity in your business
When raising funds for your business, relinquishing equity is almost always more expensive in the longer-run than taking on debt. Sacrificing equity costs you a share of your business, forever. As equity investors take on higher risk, (debt is much less risky for the investor because the firm is legally obligated to pay it) they demand more return on their investment.