Are you struggling to find liquidity? Many business owners are in a similar situation. Finding a way to finance operations can be challenging, though. The good news is that debt financing offers a solution well-suited to many different business types, including startups. Also called “leverage,” debt financing also provides a wide range of benefits.
Key Benefits of Debt Financing
One benefit of debt financing is that you get the funding you need at a lower interest rate than what you would incur with other forms of financing. For instance, if you can deduct the loan’s interest on your taxes, then you may save money.
Deductions on Taxes
Speaking of tax deductions, debt financing will usually allow you to deduct more than just the interest. Also, you may be able to deduct the principal of the loan as a business expense.
No Ownership Sharing
With some forms of financing, such as bringing on a partner or selling shares, you give up at least some degree of ownership and control over your business. However, with debt financing, you can maintain full control and complete ownership.
Should I Use Debt Financing?
While debt financing can be an invaluable aid to business owners, it may or may not be right for your current situation. For instance, if your customers don’t consistently pay on time, then your cash flow may suffer, leading to challenges with repayment. If you need the money to finance fixed cost assets, such as equipment or machinery, this may not be the right option. However, variable cost investment, like materials, can be well-suited to debt financing. Finally, if you are starting, debt financing may not be the right option. However, if your business is established, it can be a good solution.
Contact GP Solutions LLC to learn more about debt financing.