When entrepreneurs are thinking about starting their own business, one decision that weighs heavily is whether to go into debt.
As seen in the recent post, Small Business Funding By the Numbers: What Every Entrepreneur Should Know, there are plenty of financing options available to small business owners.
However, not all types of financing, and debt, are the same. Should you go into debt to start a business? Consider the pros and cons.
According to the National Small Business Association, about 73 percent of small businesses used financing within the previous year. The vast majority of those relied on personal savings (57 percent) with personal and business credit cards (10 percent) and bank loans (8 percent) far behind.
Using debt is not uncommon. The U.S. Small Business Administration notes that 63 percent of small businesses have some debt. Smaller and younger companies tend to carry more debt.
Advantages and Disadvantages
The advantages of using debt financing include:
However, there are some downsides to carrying debt, including:
Different Types of Debt
Not all types of debt are created equally. If you choose to go into debt, you should know the different types and features.
Benetrends has developed an innovative approach to small business funding that does not require entrepreneurs to take on more debt. For decades, Benetrends has helped business owners start and grow their businesses by using existing 401(k) and IRA accounts.
Benetrends helps companies establish their businesses as a C corporation and transfer existing retirement funds to the new business entity. You can open the doors to your own business, tax-deferred and penalty-free! To learn more about our 401(k) business funding option, download Innovative Funding Strategies For Entrepreneurs today.
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