There will always be this belief that debts are a bad thing. And yes, they can be a bad thing, especially if you do not manage your expectations and you’re not doing anything to pay them on time. However, it must be noted that in the context of business, it could be a good thing. They mobilize operations industry dynamics. Without startup money, businesses will not work.
While bootstrapping for your new business or new project looks like a good route to take, borrowing money through means, such as credit card and auto loans, actually has its share of benefits. It offers you a lot of flexibility that you cannot find in personal financing efforts. Here are some of them:
Borrowing money keeps you from using your assets
When you are bootstrapping for your business or new product, you are using your own money or the resources you have pooled with your partners. The risk here is high, as you can lose everything that you own in case the project fails or does not push through. When you use borrowed money, you are protecting your personal or business assets. In case you have borrowed money for your business and you want to counter the effects of risks and failures, make sure that your team has already set aside an emergency fund or a repayment fund that you can use for paying back the lender.
There are many repayment options
Many businesses gain more flexibility when repaying the borrowed money than individuals dealing with lenders. This is because many financial institutions offer a slew of repayment options and interest rates. You will even find lending companies that have conditions that are beneficial for your business; these lenders might charge less when the business is less profitable, and the required payment only increases when the company is already making money.
They are necessary for credit building
As a businessperson, you know too well that you cannot avoid borrowing money. In the future, you will undoubtedly need a large amount of cash to make your plans a reality. You can only borrow large sums of money if you have a good credit rating. And a good credit rating is only achieved when you borrow money and pay on time. When you borrow money and you diligently pay it back, you will get a good grade, which in turn will make your business credible.
They help you build business discipline
When you were young, there’s a great chance that you have borrowed a book, a pen, or money from a friend. You know that your friend expects that the item will be returned in good condition. As a result, you take care of the borrowed item. The same principle applies to borrowing business money. Because you want to build credibility and trustworthiness, you are disciplining yourself when using the money and returning it.
Debts can be useful for your business, but you have to understand that borrowing money still comes with many risks. Study them closely and always weigh the pros and cons.