Running a business is a full-time job. Regardless of how much time and money you put into this, accumulating a business debt is sometimes inevitable due to several specific situations. Such as market instability and bad decisions made by management. Business loans get higher interest rates than personal loans, and this is one of the reasons why businesses accumulate such large amounts of debt.
Business debts are harder to pay because if a company stops operating because of financial problems, debt will start accumulating just the same, and the interest rates and payment periods will become longer.
Banks and financial companies will give indebted businesses a low credit rating making it more difficult for them to acquire credit or loans. This is why business debts are more difficult to repair than any other type of debt.
Stephen Baker is a current business client here at Commercial Debt Counseling and he is very interested in some issues about business debts that our professional counselor, James Banks will help explain.
Stephen Baker:
How can a business debt be financed?
James Banks:
Mainly, there are two types of business financing methods. Debt finance and equity finance.
The former, debt finance, is the one that banks and financial companies offer you to help face the business debt. The most important benefit of debt financing is that it is limited and eventually, you will end up paying the whole sum down to zero. After that you will not have any further obligation with the lenders. The disadvantage of this type of financing is that the lender can, and will, take a very close look at your business taking into account income, costs, business’ time in existence, and you will have to use assets as collateral for the loan. Debt finance will mean an extra monthly payment.