Practically every business needs a loan at some stage in its life cycle. Many businesses will need many loans at different stages.

Business loans provide advantages in many areas:

* Initial capital investment

* Sales drives

* New product development

* Mergers and Acquisitions

* New premises

* Plant and machinery

Good Debt - Bad Debt

Business loans have a vital role to play in the development of most businesses. Small business owners in particular often have an aversion to taking on any debt. Understanding the difference between good debt and bad debt is instrumental to overcoming this reluctance. Just remember that good debt makes you more money than it costs.

If you are looking for business loans you should always be looking for good debt. We generally refer to it as investment. As long as you can answer the question, "How does this business loan make you money?" you are in with a good chance of getting your loan.

Even if you have spare capital it can often be better to finance new initiatives using a business loan. Should anything go wrong a properly structured business loan will limit your personal liability. If you use your own capital you could lose everything.

It stands to reason that good debt is one that de-risks your company capital structure.

Unfortunately it is very easy to enter into bad debt. Any loan that costs more than it returns is bad debt. External consultancy is one example of potentially bad investment. It is not uncommon to spend a great deal on consultancy only to leave the findings in a folder on a shelf gathering dust.

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.

What now?

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'.

Prior to taking out another business loan make sure you check the free resources on the best way to choose a business loan. You'll ensure that all your loans are good debt

Article Source: http://www.therealarticles.com

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