Let's Talk About Your Business Debt - Erin Armstrong

Let’s Talk About Your Business Debt

by | Oct 28, 2022 | Leading Your Business, Money Mindset, Small Business

Here’s what I know… if you’re in business long enough, eventually you may find yourself in a situation where it makes financial sense to take out a loan. Whether it’s opening a credit line to help with delayed accounts receivables, taking out a mortgage for a brick-and-mortar location, incurring a loan so you can buy out a partner’s partial ownership, or maybe you just need cash to keep your business temporarily afloat in an unprecedented time (ahem Covid)!

Business debt is a reality… but, more often than not, for many smaller business owners, it is associated with something that’s shameful and suggests failure. For these reasons business debt isn’t publicly talked about… so today I say let’s get all wild and crazy – and talk about your business debt! 

First things first: your business is not you. At best, your business is an extension of some of your best qualities, ideas, and actions. However, at the end of the day, your business is a separate entity. Furthermore, business debt is not the same as personal debt. Business debt is incurred to build and support something bigger than you—something that supports the livelihoods of those you employ and improves the lives of your customers (which is unlike a personal credit card or mortgage).

Debt is not a bad thing in and of itself– and in fact, depending on your business circumstances, there are instances when taking on business debt can be a good idea. Taking on business debt wisely—with a specific plan to use it and repay it—can help you grow, improve, or transition your business into a secure future.

Often, where businesses and business owners potentially get into trouble is when they take on new business debt without a healthy financial mindset, and without considerable thought and a firm understanding of how the new debt changes their financial everyday now, as well as their longer-term outlook. 

So, I wanted to share some basic guidelines for dealing with business debt that I’ve used in my own business as well as with my clients. Hopefully these will help you deal with debt in a more intentional, more empowered way.

Shift Your Mindset Regarding Existing Debt

In my work with businesses for the past 11 years, business owners often complain to me that a large portion of their profit is consumed by repaying old business loans. Interestingly, the reality is that the loan repayment rarely takes up a majority percentage of their profit; most of the time, the debt repayment is no more significant than any of their other costs of doing business.

What this suggests to me is that it’s not so much about the money or the amount that’s owed (though sometimes it is), but rather, the feeling and frustration of needing to clean up something from the past. I’ve been there in my own life and know this feeling is not fun. We want to enjoy our success and only look forward. (Hey, it’s more rewarding to spend money on the new things you want instead of paying off your past debt that does nothing for you right now.)

But if we feel like the deck is stacked against us, and we allow ourselves to “rest” in those feelings, it often creates an attitude of bitterness toward the business debt itself. And this is a major problem because it’s impossible for business owners to make empowered, proactive decisions with this kind of mindset. If you’ve experienced frustration or other negative emotions in regard to your business debt, try this reframe:

  1. Think about the reasons you originally took out the loan(s). Maybe you needed extra cash to float your business operations for a few months until your cash flow improved. Maybe you needed extra capital to expand to a new location or to hire new staff. Whatever your reasons for taking on business debt, I know you had reasons, and I know the original loan provided some benefit to your business.
  2. Think about all the BENEFITS that came from the original loan. It might even help for you to get out a piece of paper and make a list of all of them. Maybe you used the money only for its original purpose, or maybe an unforeseen situation arose and you used the money for something else. Whatever the case, making a list of the benefits that came from the loan will help you develop a more positive attitude (maybe even gratitude) toward the business debt.

If you can make this shift in your mindset, you’ll be in a much better position to deal with your existing debt as well as any future debt you might need to incur.

Make a Plan to Pay Off Your Current Debt

The next step is to address the debt your business is already carrying and make a plan to pay it off.

Contrary to a lot of advice out there, you don’t always need to prioritize paying off your debt as soon as possible. After all, debt is not a bad thing in and of itself—it’s just another factor that needs to be calculated as part of managing your cash flow. So if you don’t have specific reasons to pay off your debt early, you can just make the minimum payments on the loan. Now, in some cases, you will certainly want to repay your business debt on the sooner side. Here are some of those potential scenarios:

  • The loan is from an “alternative” lender at very high interest rate.
  • You plan to sell your business and the debt might jeopardize that process (or lessen the value of your company).
  • You’ve decided you actually need to take out a larger loan – often, lenders will require that you have already paid off any smaller, preexisting loans before approving you for a larger one.

Whatever your business debt situation, make sure you have a plan to pay off the debt in whatever timetable makes sense considering all your other business needs. And make sure that this plan is workable considering your cash flow.

Have a Plan When You Incur New Debt

Once you’ve shifted your mindset and you’ve addressed any debt you might currently be carrying, you will be more powerfully positioned if you find that you need to take out additional business loans.

There are many good reasons you might need to take on business debt:

  • You might need additional capital to make a needed change or transition in your business.
  • You might be facing financial challenges in the short term that require additional capital so you can get back to your normal profitability.
  • You need to make a larger investment into something that’s going to help your company generate more revenue long term – but, shorter term, a loan will help your cash flow by spreading the payments over a longer period.
  • Or you might just need to weather a rough economic period.

Regardless of your specific situation, the most important thing you can do when considering taking a business loan is to HAVE A PLAN! This includes:

  • A specific plan for how you are going to use the money.
  • Your expected return on investment (ROI). (For example, if you plan to invest the money into something like hiring an employee, opening a store front, or paying for a new marketing service, you need to have a SOLID understanding of how—and how quickly—that investment will generate a profit.)
  • How the minimum repayment terms will affect your cash flow and resources.
  • How you will pay the loan back, eventually, in full.

Having a detailed plan cannot be overemphasized in its importance. Because a specific plan (even it if needs to be altered later) sets you up for confidence, proactivity, and success.

When to Bring in an Expert

Many business owners have a basic intuition of how to strike the right balance on business debt. And if you are one of these business owners, you’ll probably be able to make good decisions in most situations when it comes to paying off your pre-existing debt or taking on new debt.

But there are situations where it really helps you to get an expert opinion. In my experience, the following are some good indicators that you might need professional help with your business debt-related issues:

  • You’re having consistent issues with cash flow.
  • You’re unsure how your long-term or short-term cash flow will be affected by paying off debt (or by taking on additional debt).
  • You can’t figure out a way to pay off your current debt.
  • You don’t have a good understanding of your financial “runway”.
  • You are depending on a future revenue stream, but are unsure when it will kick in.
  • You are planning on selling your business or taking on a business partner.

If any of these sounds familiar, you might want to consider bringing in a business financial professional like a Fractional CFO!

Over to You…

Has this post prompted any new thoughts or feelings about business debt? If so, I’d love to hear!


Wishing you fulfillment & financial success,

Erin Armstrong

Erin Armstrong is a Business Advisor, Chief Financial Officer, Tax Strategist and licensed Enrolled Agent who’s on a mission to financially empower business owners. Her unique, comprehensive approach integrates all the financial aspects of your business (such as accounting practices, tax strategy, profitability, budgeting, & cash flow) with an emphasis on developing a positive money mindset so you can move forward in a confident, proactive and empowered way. Find out more about Erin here.

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