Business Debt: Good Debt vs. Bad Debt
“Debt is a necessary part of any business journey. By taking loans or seeking financing, you’re giving your company the fuel it needs to grow.
The key, however, is understanding debt, healthy loan practices, and the difference between financing that can result in explosive growth and the kind that cripples your business.”
Good Business Debt
Government-sponsored debt programs. The United States has numerous government loan programs that allow small businesses to borrow money at competitive interest rates. The government will deduct the interest on the debt from corporate income taxes. If your business files for bankruptcy, the debt can sometimes be forgiven or reduced.
Cheaper than equity. Debt is a cheaper and less risky form of financing than equity. Because there is no legal obligation to pay dividends to shareholders and investors, they want a higher rate of return. Debt is less risky as there is a legal obligation to pay it and having more debt means you’ll have a lower equity base, giving you a higher after-tax profit rate.
Bad business debt
Debt you can’t pay back. A business acquires bad debt when they can no longer pay back the money that is owed to them. When a debt cannot be collected, it is deemed a worthless debt. When filing their taxable income, businesses deduct their bad debts, either in full or in part.
Overdue Accounts Receivable (AR). If a business gives a loan out to a vendor or employee and the debt cannot be collected, it becomes a loss. A business should only give loans (extend terms to clients) if they can fully guarantee that the debt can be paid back.
BUSINESS DEBT & CASH FLOW SOLUTIONS
Bernarsky Partners LLC is a business financial services advisory firm comprised of finance professionals with extensive industry experience offering Business Debt Solutions.
Some of our Business Debt Solutions include:
2. RESTRUCTURING BUSINESS DEBT
4. BUSINESS CASH FLOW ANALYSIS
Setup a free consultation call with us to review your business debt and cash flow situation, business goals and to discuss Business Debt refinancing and restructuring options.