Debt can be an integral component to scaling your business, but it must be used for the right reasons and in the right proportions. Harbor Crest Wealth Advisors CEO and founder Mike Hennessy spoke with LendingTree about what to keep in mind when taking out a business loan and how to manage debt. LendingTree is an online loan marketplace for various financial borrowing needs, including auto loans, small business loans, personal loans, credit cards, and more. They also offer comparison shopping services for automobiles and educational programs.
In the 2019 LendingTree article, "Tips for Getting out of Business Debt," Hennessy talks about how borrowing responsibly and spending wisely can help you reach business goals that you may not otherwise achieve without a financial boost. But the effects of business debt could spill over into your personal finances. “Your personal financial situation and your small business financial situation do not exist in a vacuum,” Hennessy said. “Given this crossover, it’s critical to understand how your personal financial situation would be affected by the worst-case scenario of your business failure.”
It’s important to fix underlying problems with your business before taking out debt. “You don’t want to use debt to treat a symptom in your business,” Hennessy said. Instead, determine if problems are related to people or processes, and then create a plan to fix it. Only then is it a good idea to take on additional debt to increase the return on investment (ROI) of the improvements you made to the business.
Lastly, ask yourself why you need a loan. “Pause, breathe, and review where you want to go,” Hennessy said. Make sure the business would generate enough income to support loan payments. Take a look at your income statement before borrowing money to see if the business is heading in the right direction. Read more tips in the LendingTree article here.