5 Reasons Why Debt Can be Good for a Business

Believe it or not, debt can be good for a business in numerous ways. It might be instinctual to avoid debt, but the fact is operating with debt is a standard business practice. From paying less taxes, to helping with aggressive expansion, here are some reasons in favor of business debt.

Filing for Bankruptcy

Filing for a chapter 11, or bankruptcy is not an easy thing to do. It goes against everything you have to do. However, after pride is gone and clearer heads prevail, you will see that filing for chapter 11 with a specialist service such as Ritter Spencer Cheng PLLC is the right thing to do when facing a mountain of debt. The main reason is that after having filed, you can start fresh in terms of finances. However, there are limitations that your law firm will inform you about first.

Tax Deductible Debt

Does anyone actually like paying taxes? We will never know. However, what we do know is that you can pay lower taxes as a business with a debt burden. Yes, you read that right. Debts that you have can be deducted from your tax bills. This is a powerful system that helps stimulate business growth because it means you can make more investments knowing the cost can come off your end of year return. Be aware though that this only applies to the interest and not the full.

Debt Can be Good vs. Equity

Debt is cheaper than equity. Why? There are a few reasons. The first being that once debt is repaid, that’s the end of it. Equity remains outstanding and you owe it to investors. And this can be quite high. To raise money for a startup, equity is offered to investors at between 10% and 20%. Payments to investors and shareholders are not legally mandated and because of this they often want a high rate of return. The legal obligation of debt is less risky at a fixed amount.

Helps with Small Business Expansion

Managing debt can actually support a rapidly growing business to increase market share. Of course, this doesn’t relate to any old debt, but generally debt that offers a return on investment that covers the debt if it works out. For example, buying better computers for the office to get more work done, or increasing funding for your R&D branch. Reputable lenders typically offer loans for these types of business activities at much lower interest rates you can afford to pay.

Debt Can Help Get Rid of Debt

There is good debt and bad debt. Good debt can help your business in many ways. One of the most powerful is using debt to get rid of more debt. Consider you owe money to multiple creditors and the bills are stacking up. A consolidation loan makes debt easier to manage. Generally, a loan company will loan you the money to pay all of your debts off. Then you owe the money to a single creditor at a much lower rate than a combined group of creditors.

Summary

Filing for bankruptcy is just one reason why debt can be good for helping a business. It is also much safer than equity. And you can use consolidation debts to reduce multiple creditor debt.