Debt is good. While this idea seems to go against common financial wisdom, in some cases, debt can be advantageous. The most nightmarish stories involve would-be entrepreneurs trying to establish their start-up in a market only to find themselves drowning in debt, whether the business is a good idea or not.
Using debt does not have to end with your business going under or you incurring a ridiculous amount of unmanageable debt. With a strategic plan that has a manageable budget, business owners can find incurring debt can work to their advantage. Whether standing on solid financial ground or trying to navigate the sometimes tricky business landscape, certain types of debt can be used in positive ways to save you money.
For ways to use debt to your advantage, keep reading below.
While in the midst of financial misery, debt consolidation loans from Latitude and other loan programs offer businesses teetering on the verge of collapse more autonomy. Typically, the ideal loan would allow a person low monthly payments with a low interest rate, something many consolidations loans offer their clients. More importantly, though, consolidation loan programs offer business owners a little more autonomy.
The alternative for business owners would be to seek funding from angel investors or others, but that would reduce the amount of control you have over your business. In situations where your business finances have been overextended, a consolidation loan provides you with a little more control over the everyday operations of your company, and more significantly, you retain full ownership of the business.
Certain industries like manufacturing and retail also benefit in terms of taking on financing. By virtue of the fact that materials have to be purchased to make products, financing these costs allows business owners a little more autonomy. In fact, when demand increases, financing is a realistic solution.
One of the major ways debt can be used to your advantage is in terms of offsetting tax liability. Lucky for you, the Australian government offers business owners the advantage of writing off several types of finance-related charges. Some debts that can be deducted include bad debts, credit card charges, and banking fees and charges. You can even deduct the amount paid from leasing an office for the purpose of running your business. In just tax deductions alone, businesses owners save thousands of dollars at the end of the year.
Lower Interest Rate
After completing your taxes, compare the percentage you paid in taxes with the percentage of interest you paid to the bank. Incidentally, this is a lot easier to figure with one loan as opposed to trying to figure out a percentage for multiple loans.
However, depending on the rate of your loan, you can find that debt works to your advantage in terms of the impact your tax deductions have on your interest rate or rates. At the end of the year, if the percentage of your business income you pay is less than or equal to the percentage of income your business pays in taxes, this is one way debt will have worked to your advantage.
One of the best ways to use debt to your advantage debt is to use the fact that most loan terms are predictable. This predictability allows you to plan for the future, whether you plan to relocate or expand. Most financial institutions provide business owners with financing solutions that allow them to plan for long-, mid-, to short-term goals.
Using a Disadvantage to Your Advantage
Common financial wisdom dictates that debt-free is the ideal goal most businesses should achieve. However, if you are just starting your business or find yourself in a place where financing is mandatory for growth, debt becomes a necessary evil, maybe. Ultimately, debt can be used in some cases to offset tax liability while in the long run giving your business the autonomy it needs to thrive.