Businesses usually require capital to meet various needs, including paying staff, purchasing inventory, and investing in infrastructure and other facilities. However, they face tough decisions about deciding the perfect method for breaching the gap between what they have and the funds they need. One of the options businesses consider is a gap. This blog provides a general overview of how businesses leverage debt for business growth.
What are the Benefits of Taking on Debt?
Taking on debt allows an individual to retain ownership of a business. A business deal allows entrepreneurs to trade a portion of their firm for funding. If the entrepreneur remains in business, relinquishing even partial ownership of a company has implications for distributing revenues and controlling business decisions. Although debt may generate a short-term financial responsibility, it automatically ends after repaying the full debt. Sometimes, the debt interest is tax-deductible, which may have financial benefits for the business. Besides, applying for debt financing usually requires less administrative and legal paperwork than structuring an equity deal.
How Companies Leverage Debt for Growth
Typically, companies take debt to fill the cash flow gap, enabling them to remain in operation during difficult financial times. Besides, debt is also used as a method of stimulating growth. Leveraging debt needs a solid strategy and knowing what return on investment the debt is likely to generate.
Debt is usually based on the owner’s equity and the perceived worthiness of the business. Business owners repay the debt over time in exchange for financing. The repayment amount usually includes the principal amount and interest. Interest plays an essential role in determining the profitability of leveraging debt. Therefore, the amount generated based on how a company invests the funds should exceed the interest to be paid.
Debt can be an effective tool in facilitating a company’s growth. Leveraging your company needs a clear strategy, practical knowledge of the funds, and commitment. This allows you to meet your objectives, enhances your business growth, and prevents you from placing your business at risk.
Are you looking for a company to leverage debt for your business? Contact us today at Rexford Commercial Capital, and let us be part of your business growth.
