Skip to Content
Business Loan

When and Why to Take on Business Debt

Taking out debt for your business may be what it needs to grow.

Taking on debt can be an inevitable step for many businesses. A loan or a line of credit can provide a struggling business with the cash it needs to expand or fund a new venture.

As with every financial move, though, it’s best to consider all angles before going ahead with the decision. Here’s what you need to know about when and why it can make sense to take on business debt:

When is it a good idea to take on business debt?

Businesses can benefit from taking out loans or opening new lines of credit under these circumstances:

When seeking resources to help grow the business. It takes money to make money, and a small business loan can help business owners pay for an expansion when they don’t have the current resources to fund it on their own. The funds can be used to broaden the company’s line of products or services, pay for a move to a larger location, fund a marketing campaign or hire additional staff.

Before taking on debt for this purpose, it’s important for a business to first measure the anticipated return on investment (ROI) for the debt. The ROI for taking on new debt needs to exceed its post-tax interest costs for the debt to be profitable for the business. For example, if a business takes out a loan to pay for new equipment costing $10,000 that will enable it to sign a $20,000 contract, it needs to ensure that a loan won’t cost them more than $10,000 in interest and other fees. Otherwise, the business will not stand to gain from taking on new debt. The profit margin also needs to be generous enough for the venture to be worth the time and effort for the business. If the final gain is minimal, the business owner may be better off investing energy in another lower-cost endeavor.

When trying to build credit. Taking out a small loan or opening a new line of credit can be a great way to build a credit profile for a business and to strengthen its relationship with financial institutions. Small loans and lines of credit can help a business prove it is responsible and trustworthy for repaying debts. This will open the doors to larger loans that may be needed in the future.

When taking on debt for this reason, it’s important for a business to run the numbers and to be sure it can handle the monthly payments, even before the anticipated boost in revenue. If a company cannot meet its monthly payments, taking on new debt can wind up doing more harm than good to its credit.

Why is debt often a preferred source of funds?

Businesses in need of extra cash can choose from several options. Primarily, a business can decide to sell equity in its company or to take out a small business loan or open a new line of credit. Here’s why debt can be a preferred source of funds for businesses:

It has lower financing costs. Unlike equity, debt is limited. Once the loan is paid back, the business owner can forget it ever existed. On the flip side, selling equity in a company generally means forking over a part of the profit for as long as the business exists. (It’s important to note, though, that debt has fixed repayment costs as opposed to equity stakes, which are determined as a percentage of the company’s profit. This means a business owner will need to pay back debt regardless of the company’s success.)

It provides tax advantages. Business debt can decrease a company’s tax liability by lowering its equity base. As an added bonus, interest on business loans and lines of credit are usually tax-deductible.

It mitigates risk. Taking on debt to access funds, instead of selling equity, lowers the company’s risk in the event that the business does not succeed.

If you’re ready to take out a business loan or to open a new line of credit for your business, we can help! Our business loans and the lines of credit feature favorable rates and easy terms. Learn more about the business loan options offered at Listerhill here.

Learn more about managing your business and its finances:

The Ultimate Guide to Applying for a Business Loan

The Products You Need For Managing and Tracking Business

default icon for Solution Finder Intro
What can we help you with?
default icon for Checking For Mature Members
What are you borrowing for?
default icon for Checking For Mature Members
Vehicle Options
default icon for Checking For Mature Members
Home Options
default icon for Carrolls
What are you saving for?
default icon for Carrolls
How old are your kids?
default icon for Cord
Which of these banking options are you interested in?
default icon for Cord
How old are you (or your child)?
default icon for Cord
How old are you?
default icon for Cord
What kind of account are you looking for?
search popup background

What are you looking for?

Common Links

Frequently Asked Questions

  • How do I connect my additional Listerhill account(s) in Online Banking?

    In order to add an additional Listerhill account in Online Banking, please:

    1. Log in to Online Banking through our website.
    2. Click the Accounts tab at the top.
    3. Click “Connect An Account”
    4. To add a Listerhill Account, click “Listerhill Credit Union Account”.
    5. Enter the appropriate information on this screen and select the appropriate account type.
      1. Account Number.
      2. Nickname the Account.
      3. Select the Account Type.
        1. Share Draft – Checking
        2. Share – Savings
        3. Share Certificate – CD
        4. IRA
        5. Line of Credit
        6. Loan
        7. Credit Card
      4. Check the box for Bill Pay if desired.

    Once finished, the new account will be added by the next business day.

  • How do I connect my credit card(s) in Online Banking?

    In order to add a new credit card in Online Banking, please:

    1. Log in to Online Banking through our website.
    2. Click the Accounts tab at the top.
    3. Click “Connect An Account”
    4. To add a credit card, click “Listerhill Credit Union Account”.
    5. Enter the appropriate information on the screen and select the appropriate account type.
      1. Account Number.
      2. Nickname the Account.
      3. Select the Account Type.
        1. Share Draft – Checking
        2. Share – Savings
        3. Share Certificate – CD
        4. IRA
        5. Line of Credit
        6. Loan
        7. Credit Card
      4. Check the Box for Bill Pay if desired.

    Once finished, the new card will be added by the next business day.

  • What if I had merchandise points?

    Cashbackmall will be available for redemption on 9/1/22 for cards converting to cash back rewards from merchandise points.

  • Who is eligible for Cash Back Rewards?

    Cash Back Rewards are available for Listerhill Signature Credit Cards. Signature credit cards require a limit of $5,000 or greater.

  • How much do I get back in Cash Rewards?

    Cash Back Rewards are calculated at 2% on purchases. Cash Advances and Balance Transfers do not earn Cash Back Rewards.