• Creating a comprehensive debt inventory enables business owners to establish payment priorities and identify opportunities for debt consolidation.
  • Learning the difference between loan terms, payment capacity, and selecting the right debt products may help prevent over-borrowing.
  • Debt management may keep cash flow healthy and position businesses well in the long term.

Running a business means making bets on tomorrow. You purchase equipment to better serve your customers. You stock up for busy seasons. You expand to reach new markets. Sometimes, these moves require borrowed money, which is a normal part of business.

However, long-term growth often falls on how you manage business debt. Think of borrowing like using any tool. Use it right, and you build something great. Use it wrong and you may cause real damage.

When Debt Makes Sense for Your Business

Smart business owners don't run from debt; they use it strategically. Several situations create good reasons to borrow money, including:

  • Equipment purchases often make the clearest case for borrowing. A landscaping company that finances a new mower may be able to take bigger jobs right away. The machine pays for itself through more work. A restaurant that finances kitchen equipment may be able to expand its menus and serve more people during rush times.
  • Inventory financing may be a suitable option for businesses with varying seasonal needs or rapid growth. A retail store needs holiday stock on shelves before customers start buying. Short-term debt bridges the gap between purchasing inventory and collecting payment for sales.
  • Temporary financial gaps are another common reason business owners borrow money. Many businesses experience regular fluctuations or wait between completing work and receiving payment. A builder might finish a project in March but not get paid until May. A line of credit may cover payroll and bills during that wait.
  • Growth opportunities often require capital that businesses may not have readily available. Opening a second location, launching new products, or expanding into different markets typically requires an initial investment before returns are realized.

The key is ensuring that borrowed money either generates additional revenue or supports essential operations. Debt may become dangerous when businesses use it to cover ongoing losses or fund expenses that don't contribute to the business's success.

Managing What You Already Owe

If you already carry business debt, start by getting a clear picture of what you owe. 

List out all your business debts. Write down the lender, current balance, rate, monthly payment, and time left. Add term loans, credit lines, equipment financing, and credit cards. This often reveals surprises: debts cost more or less than you remembered, or payment schedules create cash flow problems.

Once you understand your financial situation, look for ways to refinance or consolidate your debts. Interest rates change, and your business credit may have improved since you first borrowed. A business that took a high-rate loan during startup might now qualify for better terms with proven revenue.

Combining debts might simplify your financial life by consolidating multiple payments into a single one. Rather than juggling five different payment dates, rates, and terms, you handle one relationship. This cuts paperwork and often lowers total interest costs.

Use automatic payments to avoid late fees. Missed payments hurt your credit and add penalty costs you don't need. Many banks offer autopay that takes the minimum payment on the due date, so you never miss one during hectic periods.

Think about whether to pay off high-interest debt first or knock out small amounts quickly. Paying the highest rates first cuts costs over the long haul. Paying off smaller amounts first gives you quick wins that keep you motivated.

Smart Borrowing: What To Check Before Taking New Debt

Before taking on new debt, honestly look at your ability to pay it back, which is more than simply being able to make payments.

Start by examining your monthly cash patterns. Many businesses have ups and downs throughout the year. A business with strong summer sales but slow winters needs to ensure that debt payments are manageable during lean months.[1] Figure out your debt-to-income numbers and make sure additional payments won't stretch you too thin.

Loan terms mean more than just the interest rate. Fixed rates provide predictable payments, while variable rates may start lower but can increase over time. Some loans charge fees if you pay early. Others have balloon payments that need big lump sums on specific dates.

SBA loans may offer better terms for qualified businesses, including lower down payments or longer terms. However, they typically require additional paperwork and take longer to approve than regular loans.

Your Partner in Strategic Growth

Our financial management resources help you build the systems and insights needed to make smart borrowing choices. From cash flow analysis to loan comparison tools, we give you the information you need to handle debt well.

Talk with a PNC business banking advisor today about your current debt or future borrowing plans. Together, we can develop a financial strategy that positions your business for steady growth while maintaining the flexibility to take on your next opportunities.