Should You Launch a Business Even If You Have Debt

Do you have debt? Of course, you do. There are not many companies that do not have any debt. But the main distinguisher in these matters is either your debt is good or not, as in some cases debt can hep business to grow. The problem appears when you go so deep into debt, so it starts to ruin your business. You will need to address the questions below to help you assess your unique situation.

What are your circumstances?

Before you even start analysing your business, you need to be upfront with yourself about your debt situation.

What type of debt do you have?

Debt differs. The ‘good’ debt is the debt that creates long-term value or an increase in earning potential such as student loans, mortgages, home equity loans and car loans. This kind of debt brings some sort of value to you while also bearing lower interest rates.

Debt that is regarded as ‘bad’ debt includes payday loans, credit card debt and cash advances. This type of debt doesn’t bring any long-term value and typically charges high-interest rates.

The reason why it is essential to know the type of debt that you bear is that financial institutions, investors, and lenders are cautious with it. If you decide to get a business loan, most banks will want to see your personal credit history. Because most small business lenders perceive the financial viability of a business as synonymous with the personal credit of its owner, business owners with a poor personal credit history or a significant amount of existing debt often have tough time to qualify for a business loan.

Do you have a sound business plan?

If you are positive about your debt situation, the next step is to assess your business idea in detail by writing a comprehensive professional business plan which serves the purpose of a feasibility study of your business idea. A well-thought out plan comprises the following parts:

• Executive summary and business information

The beginning of your business plan should outline general business information, list key personnel and describe the business model being adopted. Executive summary summarises the main points of the entire business plan and provide a complete and concise synopsis of the problem, solution and opportunity.

• Market research and analysis in the form of marketing plan

This section represents a description of your target market (e.g., demographics, size) which identifies your most likely customers with at least two or three levels of segmentation as well as the analysis of the industry. It is also necessary to know who your competitors are, their strengths and weaknesses and how your products and services differentiate from theirs.

• Operations plan

This part is where you clearly state how your team contributes to reaching company goals and propel the success. It outlines the daily tasks required for running a business known described in routine processes. Critical Capacity addresses resource gaps in the proposed business.

• Financial plan and forecasting

A financial plan is an overview of start-up costs, profit and loss statement and balance sheet forecasting and cash flow projections for growth.

Planium Pro can make planning your business simple and easy. It can help you to put an investor-ready business plan in place in a fraction of the time. We have selected the best marketing, operations and finance models that will guide your business to new strategic heights.

What are your funding solutions?

• Traditional lenders (banks and credit unions) – these institutions usually require a personal guarantee in exchange of providing a low annual percentage rate. A personal guarantee implies the personal responsibility and liability of its business’s debt, so in case your business goes bankrupt, you will have to repay on those business loans.
• Crowdfunding – it allows you to secure financing for your business without taking on debt; it works if you launch a product with mass appeal. You will need to put in lots of work and time to draw the attention of the crowd, besides, your idea needs to be interesting enough to capture that attention. Resort to aggressive self-promotion on social media and create an engaging video for your crowdfunding page to be successful in receiving the funding.
• Asset-Based Debt Financing – if you need to acquire expensive equipment for your business, apply for equipment loan. If you default on an equipment loan, for example, your lender can repossess and sell the equipment you purchased in order to recoup their investment.
• Government loans and grants – Applying for a grant allows you to not only receive the necessary funding but provides benefits in the form of free publishing, networking opportunities, and prestige. There are lots of targeted opportunities for grants, too, including grants for women entrepreneurs, grants for minority-owned business, and more. To land the grants, however, it is essential to have a solid business plan in place in order to be competitive.

Summing It Up

Obtaining funds to start a new business is a challenge, regardless of whether you have debt or not. The key is to not let your existing debt stop you from realizing your dreams. Think of alternative methods for financing for your business in order to avoid additional hurdles placed on you by traditional banks.