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There are two kinds of business debt: debt that can be paid off and debt that can't be paid off. The second part concerns the debt you're trying to pay off without risking your business. On the other hand, manageable debt is debt that you can safely pay off a little bit at a time, like any other recurring operational cost. So keeping your debt under control gives you many more benefits than just a chance to grow your business. Having no debt is safer than having debt that you can handle. But believe it or not, not having any debt isn't always a good thing. Here are a few reasons why not having any debt might not be suitable for all businesses: 1. A lower credit rating Paying bills on time is one of many ways to get good credit. However, it would help if you also had a reasonable credit utilization rate based on how often and how much you borrow money. This is why people with only one credit card who pay it off in full every month don't always have the best credit scores. Forbes says that a person with a credit utilization rate of about 5.6% has a credit score of 780 or more. On the other hand, someone with a 77.2% utilization rate likely has a credit score below 600. In short, you can only get good credit with multiple types of debt. It would help if you had good credit to get the best business loans and credit cards on the market. 2. Equity financing has some negative effect When businesses don't want to take on debt, they often use equity financing. Equity financing is better because you don't have to pay it back. But you have to give up some of your ownership, and the money might only be good for certain things. These are just two of the many problems with equity financing. 3. Less money saved on taxes One of the best things about business loans is that you can deduct interest payments from your taxes. For example, let's say you and your competitor make the same amount of money. You used a small business loan to pay for your business, while your competitor got money from investors. If you deduct interest payments from your taxes, you will likely win the race to make the most money. 4. Fewer Funds to Cover Sudden Expenses Unexpected costs are a normal part of running a business. At some point or another, every business will need to come up with a large sum of money quickly. If you used your own money for this, you might miss out on a rare but profitable opportunity. And what happens if you get another curveball? If you have little money in the bank, it's easier to get business loans. When you use a business loan to pay for unexpected costs, you still have your savings. You would be okay with getting a second loan. Businesses need to keep a good amount of money in the bank if they need more. How can companies prevent taking on too much debt? No rule book says what you can and can't use debt to pay for. This is another reason why most people have too much debt to handle. So, business leaders should focus on their debt instead of specific costs and ensure they're using the right tools to finance debt. Here are a few ways to keep your small business from taking on too much debt: 1. Put money into your business bank account regularly Rule number one to avoid having too much debt is to put money into your business bank account every time you get paid. You put a certain amount of your income into the account. When you save money, you have more cash to spend instead of going into more debt. How you spend this money is up to you, though. Some people like to use it to pay for small business costs that keep coming up, like hosting for their websites or the membership fee for their accounting system. Some people only want to use this money for significant expenses, like buying a plane ticket to a conference. But this is only possible if you keep your business money separate from yours. Opening a separate personal account and using it like a business account is better than keeping personal and business money in the same bank account. 2. Use the right tools to pay off debt Credit cards and small business loans are the two most common ways to pay off debt. Even though the second option is usually cheaper, it makes more sense to use the first one to pay for certain recurring or one-time costs. For example, a business credit card with 0% APR for 12 or 18 months might be a better way to pay for a big purchase. You could buy something at the beginning of the year and pay it off with no interest if you paid it entirely by the end of the year. Reward programs are another important factor. Some business credit cards give bonus rewards for phone bills, Wi-Fi, office supplies, or airline travel. 3. Don't get too big too soon When a business starts and takes on too much debt, it usually has at least one thing in common: it tries to grow too fast. This doesn't just mean how quickly they moved forward with a plan that changed the game. When a company grows too quickly, they often need more data to back up its efforts. Before you have a good track record of investment returns, you need to go slow and save money. Your only fixed costs should be for the most important things. 4. Cut Expenses Debt makes you feel restricted. The fastest way to stop feeling this way is to get as much cash as possible. So, look at your financial statements to see where you can save money. For example, if your business is in grave danger, you might want to cut or temporarily stop any costs that aren't necessary for the day-to-day running of your business. As for the costs necessary for your business, look at which ones you can cut or change to your advantage. For instance, a vendor who can't give a discount can offer a flat rate. Even if there is little room to cut monthly bills, taking steps to cut costs is a big step in the right direction. At least you no longer have to worry about paying too much for something you don't need. 5. Talk to your credit card company. Have you always paid your credit card bills on time? If so, you can get the interest rate lowered. Credit card companies are much more likely to approve these requests from businesses generally doing well financially. Balance transfers are another option. You move credit card debt from one card to another with a lower interest rate. 6. Pay off debts with high-interest rates First The monthly payments are most for the debts with the highest interest rates. So, you should pay off these debts first. Instead of making the minimum payment, figure out how much more you can pay each month than the minimum payment. Then, when that debt is paid off, use the same method to pay off the next debt with the highest interest rate. This strategy has been shown to help people save more money over time and pay off their debts faster. 7. Get a loan for your small business One of the most common reasons for getting a business loan is to pay off debts. But it would help if you did the other things on this list before applying. Showing you've done everything possible to get out of debt will significantly improve your chances of being approved. If you are paying back more than one loan, you can combine them into a single loan with a longer term and a single payment each month. Your monthly bills will go down, but it won't hurt your credit.