Forget about haunted houses, witches and goblins—what many small business owners fear more than anything is financing and taking on debt. You’ve probably met entrepreneurs who brag about never taking out a business loan, paying cash for everything, and financing their businesses by bootstrapping. While they may believe this approach is something to be proud of, in reality, never taking on debt can actually hold your business back.
What You Need to Know About Financing
The Benefits of Business Debt
Taking on business debt, whether in the form of a business loan, invoice financing, business credit card usage, or arrangements with vendors, has a couple of key benefits for your business.
First, managing your debt wisely helps you build your business’s credit rating. Unless you borrow money and pay it back on time, your business is not building good credit, or creating a solid credit score. This can make it difficult to find financing when you really need it. For example, if a bank only has your personal credit score to rely on, they’ll be less likely to give you a loan than if your business also has a strong credit score.
Second, business debt used correctly can enable you to grow your business faster than it otherwise could. Few of us can afford to buy expensive equipment outright or purchase a commercial building without using debt as an instrument. If you live in fear of business debt, your company will never grow very big.
As you can see, there are some good reasons to take on business debt.
Overcoming Your Fear of Business Debt
If you’ve studiously avoided business debt until now, how can you get over your phobia? Here are three steps:
- Get and use business credit cards
If you’re really debt-averse, start small with a credit card designed for small businesses. (You should never use your personal credit cards for business purchases.) Look for a business credit card that reports your payments to one of the major business credit reporting agencies—Experian, Equifax, or Dun & Bradstreet. Make your payments on time, and don’t use more than 25–30 percent of your available credit. By managing your business credit cards well, you’ll build your business credit score.
- Ask your vendors for credit
Establishing credit with your vendors and suppliers is another good way to ease into business debt. By asking for 30-day, 60-day, or even 90-day terms, you’ll be able to keep your money in your business account longer, so it can do more for you. As with business credit cards, make sure that your vendors report your payments to business credit reporting agencies so you continue to strengthen your business credit score.
- Start small with invoice financing.
If applying for a business loan or line of credit seems too intimidating, start small by using invoice financing. For example, at Fundbox, you can get an advance for 100 percent of the value of an invoice, often in as little as one business day. Finance just one invoice or as many invoices as you like. There’s no need to worry about being in debt forever: You’ll pay the advance back in weekly installments, typically over a 12-week period, though you can also choose a 24-week schedule. Want to repay it earlier? No problem—and no additional fees, either.
Once you get your feet wet with business borrowing, you’ll wonder why you ever had a fear of financing in the first place.