Dear M & M: Is business debt good or bad for a small business? – Debra

Dear Debra: Debt is a necessary part of most small businesses. However, there is a thing called bad business debt. An example of bad business debt would be a loan you can’t pay back, or on the flip side, a loan your business might have made that the person you loaned the money to can’t pay you back.

As a business owner, you should only take on debt if it leads to making your company better off than it would have been if you had not taken on this extra burden called debt. The amount of debt healthy for any business is dependent on the purpose of the loan and does it lead to accomplishing part of your businesses strategic plan. In the end did the business debt leave your company in a better position than it would have been had not the debt occurred?

Before taking on any debt, understand you risk tolerance and your forecasts into the future and market conditions. Does the return on the investment (ROI) outweigh the cost of the debt? Can you still make money in addition to paying interest on this debt?

ASK M&M is prepared and submitted by Mark Schmitt, director of the Small Business Development Center at Cochise College; and Mignonne Hollis, executive director at the Arizona Economic Development Foundation. To ask your questions: Call the Small Business Development Center (SBDC) at Cochise College (520) 515-5478 or email schmittm@cochise.edu or contact the Arizona Regional’ Economic Development Foundation at (520) 458-6948 or email hollism@aredf.org; www.aredf.org.