Fueling business growth with debt
The idea of taking on debt normally carries a negative connotation. However, debt when used wisely can actually propel business growth. Positive cash flow reigns as king but a loan when leveraged wisely is pretty royal. If a bridge loan is used to pay upfront expenses on a large contract, and is paid off upon collection of sales revenue under the contract, this is considered good debt. Similarly, loans that will be invested to generate long term income or value is also good debt. Below are some key ways loans can be used to fuel business growth, providing the rate of return on the investments is higher than the interest rate on the loan :
“Positive cash flow reigns as king but a loan when leveraged wisely is pretty royal”
Investment in Growth: loans can be used to fuel growth if the funds are used to expand the business (hiring new staff, opening new locations or launching new marketing campaigns).
Research & Development: Loans could be leveraged to turn ideas into products, services or market redefinition, all of which could translate to business growth.
Improve Operational Efficiency: Businesses can use debt to invest in upgrading existing equipment and to purchase new technology, both of which could improve efficiency and reduce operational costs. Enhanced efficiency and cost reduction are both drivers of business growth and competitive advantage.
Mergers & Acquisitions: Loans can be used to extend the market share of a company through the acquisition of competitor businesses or the merging of business entities. Both options can fuel business growth in the short and long term.
As shown above, Business Leaders can choose to see debt as an opposing force or when leveraged effectively, as a tool to fuel growth of their organizations. The key to success lies in managing debt wisely. It is important to review loan contracts regularly, refinance high interest loans as soon as possible, use bridge-loans for short term needs and avoid over-leveraging as this could adversely impact cashflows.
Our CFO Advisory service offering includes debt management and cash flow management in general. Feel free to schedule a complimentary consultation below or call us at (813) 489-0295.