As a small business owner, you have to be careful when buying on credit or taking out loans. Too much debt means you may have trouble making payments on your principle or interest balances. If you cannot make your payments on time, you may have to refinance at higher rates, sell off important assets, or possibly default on loans. If worse comes to worst, your credit standing could suffer, or you could end up in bankruptcy.
So, here are five tips for protecting your business while borrowing money:
- Avoid borrowing against future revenue to pay current expenses. This indicates that you’re spending beyond your means.
- Always consider buying with cash before using credit
- Stay informed about interest rates and find the sources that allow you to keep yours low
- Avoid using assets for collateral that are needed for regular business activities. Examples of these assets include: inventory, the company car, etc.
- Obtain a line of credit with the bank before you have a need for the funds. Interest is usually not charged on a preapproved line until borrowing takes place.
Your ability to manage debt could be the difference between the success or failure of your business. So, it’s vital to make sure that you have a good handle on debt and other related cash flow issues. For more assistance with planning and protecting your business, contact Marietta CPA at 317-216-1040.