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In business, is there really such a thing as good debt?

On Behalf of | Mar 11, 2016 | Business & Commercial Bankruptcy |

The idea of carrying debt can make some Rockland residents cringe. Being responsible for debt may conjure up images of mounting bills, harassing collection calls, and overwhelming stress for those who are subjected to the weight of debts. However, in some situations, debt may not always be a bad thing. Particularly in the context of business, there are such things as good debts.

First it is important to recognize what makes many debts bad. Bad debts are those that cost individuals money that they don’t have, such as credit card balances and unpaid medical bills. These types of debts, which businesses can also incur in the forms of loans and lines of credit, can incur interest that causes them to grow and become even more unmanageable. When a business carries too many bad, costly debts, it can face significant financial and operational problems.

However, there are some debts that may actually benefit businesses. Just as bad debts cost businesses money, good debts can help businesses earn money. Consider a business that takes out a $50,000 loan to upgrade its operations in order to better serve its customers. Imagine that loan requires the business to pay the lender $1,000 per month, but that as a result of making the operational upgrades, the business is earning $2,000 per month more than it did before taking out the loan. Even though the business has incurred a sizable debt, that debt enables it to make more money than it did before and become more successful in its operations.

Even those debts that start out as being the good kind, or at least are not problematic, can become detrimental for a business or individual, if unexpected events occur. When debts mount and individuals and entities cannot manage their outstanding financial obligations, personal or business bankruptcy can be an option for those who need help with their financial challenges.

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