Debt can play a pivotal role in helping to grow a
business—but only if you do it right. That means financing
your working capital needs with short-term debt—like
operating loans and accounts payable, funding capital assets with
term financing or leases, and matching repayment terms on your
loans with your business's cash flow ability.
These five steps can help you properly structure your debt most
effectively:
1. Choose the right lender.
The financial health of your business will usually dictate the
type of lender that fits your business risk level. Generally,
lower-risk businesses will deal with lower cost traditional or
senior debt lenders, while higher-risk borrowers are more likely to
pay the higher borrowing costs charged by subordinated debt,
mezzanine or asset-based lenders. In all cases, be sure to work
with a lender who understands your business and industry,
particularly as these industry-focused lenders frequently offer
better terms and pricing.
