Business loans are essential for most businesses to develop. Loans will be required many times in the life time of the average company.

Business loans provide advantages in many areas:

* Start up cash flow

* Sales drives

* Researching products and services

* Investing in acquisitions

* New premises

* New production equipment

Understanding the difference between good debt and bad debt

For most businesses business loans are essential. Yet many small business owners fail to achieve their potential as they are scared of entering into debt. Canny business people know that there are two kinds of debt. Good debt is the sort that makes you money. Bad debt is the sort that costs you money.

Good debt is the only type of debt to have. When you apply for a business loan make sure you know precisely how you are going to profit from the investment and you should find the process very easy.

Even if you have cash in the bank it often makes sense to obtain business loans to provide the maximum leverage from your investment.

Good debt provides a positive return on your investment – it is up to you to maximise that return through the optimum mix of cash and loan.

Conversely, I have seen many companies enter into manifestly bad debt. One of the more common situations is expanding into larger premises to boost output without first doing market research to show that there is sufficient demand to finance the debt.

Much poor business investment – and hence bad debt – comes from product development on what we perceive our customers need. It is a sad fact of business, and life, that just because we need something doesn’t mean we want it nor that we are willing to pay out our hard earned cash.

First steps

Preparation is the key to ensuring all your business loans become good debt. The terms of the loan, the balance between capital or equity investment, and even the interest rates you have to pay are secondary to ensuring you are entering into ‘good debt’.

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