When Debt Isn’t Bad: Using Business Credit as a Tool for Growth

When you hear the word “debt,” what comes to mind? For most people, it’s stress, shame, high interest rates, and endless bills. Consumer debt, such as credit cards and payday loans, can definitely derail your finances. According to the Federal Reserve, U.S. households collectively hold more than $1.2 trillion in credit card debt, much of which is at interest rates exceeding 21%. That kind of debt is a drag on your financial health and rarely leads to anything positive.

But business debt is different. Used wisely, it can help you reach your goals faster, invest in opportunities you couldn’t otherwise afford, and build long-term wealth. The real danger isn’t debt itself; it’s treating all debt as equally bad. That fear-based mindset can hold you back from expanding, hiring, or innovating.

In this article, you’ll learn how to separate good debt from bad debt, build a smart credit strategy, and shift your mindset so debt works for you instead of against you.

The Problem with the “All Debt Is Bad” Mindset

Growing up, many of us heard warnings like, “Don’t buy what you can’t pay for,” or “Debt ruins lives.” That advice makes sense for personal spending - borrowing for vacations, cars, or clothes creates a cycle of payments with no return.

However, in business, avoiding debt at all costs can actually hinder growth. Imagine running a bakery with an oven so inefficient that it limits the number of loaves you can sell. A new oven costs $15,000. Saving up $15,000 could take years, whereas financing it now means you can bake more bread, serve more customers, and use the added revenue to pay off the loan.

This is the key difference: consumer debt is often about buying wants, while business debt is about creating capacity. When you fear leveraging credit in business, you may unintentionally stunt your own growth. As you recognize this, you stop seeing debt as a trap and start viewing it as a tool.

Good Debt vs. Bad Debt for Business Owners

Not all business debt is created equal. The difference comes down to whether debt funds grow or drain resources.

Good Debt

• Creates new revenue streams or expands existing ones.
• Increases efficiency, productivity, or profitability.
• Pays for itself (and more) through measurable ROI.

Examples:

• Financing a marketing campaign that brings in new clients.
• Borrowing to buy equipment that reduces costs or increases output.
• Taking out a loan to expand into a new location with proven demand.
• Paying for continued education so you can improve your skills and knowledge 

Bad Debt

• Covers recurring expenses without solving the underlying problem.
• May not generate future income.
• Leads to dependence on borrowed money to stay afloat.

Examples:

• Borrowing to pay salaries without a plan for increasing revenue.
• Taking on debt to cover rent because cash flow isn’t managed.
• Relying solely on high-interest credit cards instead of structured financing.

The difference is intention. Debt used as an investment is a lever. Debt used for survival becomes a weight.

Building a Smart Debt Strategy

Using debt wisely doesn’t happen by accident. It requires planning. Here are the key steps:

1. Identify ROI Before You Borrow

Ask: What return will this loan generate? If you take out a $50,000 loan for a new product line, how many units must you sell to break even? What’s your timeline for profitability? Be realistic. Hope is not a strategy. Numbers are.

2. Create a Repayment Plan

Debt only works if it doesn’t choke your cash flow. Map out repayment terms and stress-test your budget to ensure you can afford them. Could you still pay the loan if sales dip by 20%? If not, renegotiate the terms or explore alternative financing options.

3. Integrate Debt Into Your Systems

Here are some examples of how the four foundational business systems, legal, insurance, financial, and tax, come into play:

• Legal: Make sure loan agreements are structured to protect your business, not your personal assets. Personal guarantees can put your home or savings at risk.
• Insurance: Consider business interruption insurance to protect against unexpected events that could derail your repayment plan.
• Financial: Track ROI carefully. Monitor cash flow and compare actual performance to projections.
• Tax: Work with your tax advisor to take advantage of interest deductions and structure payments in the most tax-efficient way possible.

4. Keep Communication Open with Lenders

Lenders prefer proactive communication. If you anticipate any issues with repayment, please notify them promptly. Many lenders will work with you if you’re transparent and show a plan.

Even with the best strategy, taking on debt can be a daunting prospect. That’s why shifting your mindset is just as important as the numbers.

Changing Your Relationship with Debt

Think of business debt as a tool, like a hammer. In the wrong hands, a hammer can cause damage. But used properly, it builds homes. Debt works the same way.

Consider these mindset shifts:

• From Fear to Leverage: Instead of seeing debt as a trap, see it as a lever to scale faster.
• From Scarcity to Growth: View debt not as money you lack, but as fuel for expansion.
• From Burden to Investment: Treat debt payments like any other investment in your business, with an expected return.

Many successful businesses started with debt. Starbucks, Amazon, and Tesla all relied on financing in their early years. They didn’t fear debt; they used it to their advantage. The lesson is not to avoid debt but to harness it wisely.

Bringing It All Together

Debt doesn’t have to be a four-letter word. When you shift your mindset and use it strategically, debt becomes one of the best tools to accelerate growth, increase profitability, and invest in your future success.

As a business advisor, my process begins with a review of the four foundational systems of your business: legal, insurance, financial, and tax. I ensure you have the support you need to make smart financial decisions, including how to leverage debt wisely. 

📞 Book your 15-minute discovery call to get started. Contact us today!

This article is a service of Res Nova Law, a LIFTed Business Advisor and Personal Family Lawyer® Firm. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a LIFTed Business Breakthrough Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Life & Legacy Planning™ Session.

The content is sourced from Personal Family Lawyer® for use by Personal Family Lawyer® firms, a source believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own separate from this educational material.