If you were to ask me what I think about business loans, my first reaction would be: “Avoid them at all costs!” BUT, I would be hard-pressed to find a business that hasn’t used or considered the use of debt at one point or another. I would be doing you a disservice to not have a debt conversation, so I’m talking about it and want your thoughts too.

Debt, by definition, means “the state of owing money”. The truth is that most of us are currently in this state in our personal lives. Whether it be owing money on a car, student loans, or a mortgage, we probably owe money to someone. Indebtedness has become the normal state of being in our society. However, it does not have to stay that way. I believe that debt holds people back from wealth both in personal and business finances. Sometimes debt can be used as a temporary tool to reach your financial goals (i.e. purchase of a long-term asset like a home) and sometimes it’s used as a crutch to lean on when cash is short (i.e. paying bills with the credit card).

In business, we are constantly making decisions where our money should be spent. But sometimes the spending needs outweigh the cash on hand, and that’s when many owners will turn to debt financing options.  So, how can you tell if you are using debt as a crutch to help you hobble along or a tool to create something greater?

Signs you are using debt as a crutch:

  1. You need money for an immediate expense

When the money is being used to cover time-sensitive expenses like payroll and vendor bills, that’s the #1 sign of using debt as a crutch.

  1. You are making panicked decisions

Owners that aren’t thinking clearly about financing options will take the quickest route possible to getting cash. Many times, that means leaning on credit cards and loans that are quickly available. This is usually done in haste and without much thought of consequences or interest rates.

  1. You don’t have a plan for the money

If the money isn’t needed to cover immediate expenses, but you don’t have a plan for the cash, then that can be a crutch too! Not having a plan for the money can lead to spending on unimportant and unnecessary things. Additionally, having access to money that you don’t need can make your business feel more secure than it is.

  1. It keeps you up at night

If that money you borrowed is disrupting your sleep, then it’s probably a crutch that you know you shouldn’t have.

  1. You aren’t making a significant investment

This relates to #1 above, but if you aren’t investing in productive assets or services to increase the profit and value of your business, then the debt is not a positive thing for your business.


Signs you are using debt as a tool:

  1. You have a solid plan

If the money will be used as a tool in your business, then you will have a clearly written plan for it. You will have done the assessments on what you will buy and what the return on investment (ROI) should be. This plan will be helpful as you go to a bank since they will be able to see your plans for THEIR money.

  1. You have considered other funding options

Cash can be obtained through many means. Savvy owners will investigate other funding options as well as debt funding for their businesses. Owners may strategically use debt as a tool to get cash AND retain full ownership of the company.

  1. You have done your research

If you go into the loan process knowing about types of loans and loan terms, you will be better equipped to make an informed decision. You will be able to assess each loan offer and know how to spot a bad loan.

  1. You are increasing value

If you are using the funding to buy or invest in something that will improve your business valuation or increase revenue, that’s a good sign you are using debt as a tool.

  1. You have a repayment plan

Business loans are meant to be temporary. If you are going to take out debt, you need a repayment plan for it as well. Careful owners will make sure they have a manageable plan for timely repayment.

Which of these sounds more like you? If you do have debt and fall into the “crutch” camp, don’t fret! Just because you use a crutch, doesn’t mean you won’t ever walk on your own again! There’s hope. I’ve helped businesses go from using debt to cover payroll to debt-free in less than a year! It is possible, but it all starts with some awareness that there’s a problem. From there, you can make a plan. When you have a plan, you are on your way to a bright financial future.

If you are currently using debt as a tool, that’s great. But don’t rest until the debt is repaid in full. Multi-billion dollar companies have gone bankrupt because of debt (many are in the news right now). It’s best to get that debt off your balance sheet as soon as possible. Try building cash savings for the next investment you want to make in your business.

If you want to talk to a small business CFO about your business finances, we are now taking consultations. We can review your financials with you, provide insights, and even assist with decision making. Book these sessions as you need them by clicking HERE.

Want to change your debt story?

Are you ready to gain control and clarity in your business finances? Ready to take the next step to maximize profits and make confident financial decisions? We’d love to talk with you about your financial needs and help you make a path to your goals. Let’s talk.

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Disclaimer: This blog and the linked videos are intended for educational purposes and should not be taken as legal or tax advice. You should consult with your financial professionals about your unique financial situation before acting on anything discussed in these videos. Clara CFO Group, LLC is providing educational content to help small business owners become more aware of certain issues and topics, but we cannot give blanket advice to a broad audience.