Most small businesses have debt, at least at one stage or another. Reducing Business Debts and finding the Best LLC Services can help improve the financial stability of a company. In fact, a survey covered by SmallBizGenius in 2019 indicated that some 70% of small businesses currently have outstanding debt. This number was based on a sample of more than 6,000 businesses spread out across all 50 states, and should thus represent a fairly accurate picture of the state of small businesses concerning debt.
As many entrepreneurs will tell you, this isn’t necessarily a bad thing as it sounds like. To begin with, a majority of those businesses surveyed — about 68% — reported that while they did have outstanding debt, it was under $100,000. More importantly, though, debt can be a useful tool for small businesses looking to grow. As Inc.’s argument for debt over equity put it, opting to take on debt allows you to keep full control over your business and maintain full perspective regarding profits. Debt, as they put it, “can be your best friend” when compared to the option of giving up equity.
Naturally, this is all relative, and taking on particularly significant debt can still be a problem. But where the bigger issues can creep in is about liability. When taking on debt for your business, it’s essential to make sure that the debt belongs to the business, and that you are not personally liable.
The good news is that there are a few good ways to go about doing this.
Avoid Personal Collateral
One of the more troubling notes in the aforementioned survey of small businesses is that 58% of owners reported putting personal assets up as collateral for loans. It has to acknowledge that in some cases this is essentially unavoidable. An owner with limited options and assets may feel that he or she simply has to put personal assets on the line in order to acquire funding and launch a business. But whenever possible, this should avoided as it directly ties your personal financial wellbeing to a business-related debt.
Make Your Business an LLC
If you haven’t read into specific business structures before, you may not be particularly familiar with what an LLC — or Limited Liability Company — is actually for. But the answer is essential for addressing the very issue we’re talking about! ZenBusiness defines the LLC structure as one “where the owners are not personally responsible for the company’s debts or liabilities”. By way of this structure alone, that is, a business can take on debt as its own entity. The debt is still owed, of course, but the owner’s personal assets cannot be counted as liable for that repayment.
Use Credit Cards Strategically
When covering ‘How to Make the Most Use of Business Credit Cards’ recently, we noted that one of the benefits of these cards is that they can help to separate your finances from those of your business. While you may initially need to acquire a business credit card based on your own personal credit history. It is a good idea thereafter to build up the business’s own history. Done effectively, this can set a business credit card up essentially as its own entity. Such that any repayment issues won’t affect your own personal credit.
Avoid Debt to Begin With
The final option, of course, is to avoid debt, to begin with. We acknowledged above that debt can be good for a small business, as well as that it’s extremely common. It is not mandatory, however, and if you’re worried about being personally liable for business debts. You have the option of exploring other avenues for funding. Even if you do ultimately take on business debt though. The tips and methods above should help you to keep it separate from your personal finances.