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How much business debt is too much?

Debt can serve some very important purposes for businesses. For many companies, it can be a critical source of financing for getting off of the ground or growing. In a 2017 survey, around 77 percent of polled small business executives pointed to money from financial institutions as being important for small business success.

However, if business debt becomes overwhelming, it can quickly turn from a help to a hindrance. Debt problems could endanger a wide range of goals business owners may have regarding their company.

So, avoiding taking on an overwhelming level of debt is important for small business owners.

How much debt is too much for a business?

There is no general “magic number” at which business debt suddenly turns unhealthy. How healthy and manageable a given debt load would be for a company is affected by many things including:

  • How the amount of debt taken compares to things such as the company’s income level and the company’s likely future growth
  • What the debt is used for
  • What type of debt has been taken out

So, when deciding what kind of debt to use and how much debt to take out, it can be important for small business owners to carefully consider their company’s situation, their goals for the company and what funds they would need to take the concrete steps necessary to achieve their goals. Taking out debt without having a clear plan on how to use it is among the things that could put a business owner at risk of falling into overwhelming debt.

So, among the steps business owners can take towards trying to avoid landing their company in too much debt include making a clear plan for business debt and being very thoughtful and deliberate about when to take on debt under such a plan.

When debt becomes overwhelming for a company, it can be important for a business owner to make a plan for how to address the debt. Such a plan could include many things. In some cases, bankruptcy may be part of such a plan. Small business owners can reach out to experienced bankruptcy lawyers for help in developing plans for addressing overwhelming debt that are well-tailored to their needs and goals.

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