When you hear the word “debt,” what comes to mind? For most people, it’s stress, shame, high interest rates, and endless bills. Consumer debt like credit cards and payday loans can definitely derail your finances. According to the Federal Reserve, U.S. households collectively carry more than $1.2 trillion in credit card debt, much of it at interest rates above 21%. That kind of debt is a drag on your financial health and rarely leads to anything positive.
But business debt is different. Used wisely, it can help you reach your goals faster, invest in opportunities you couldn’t otherwise afford, and build long-term wealth. The real danger isn’t debt itself; it’s treating all debt as equally bad. That fear-based mindset can hold you back from expanding, hiring, or innovating.
In this article, you’ll learn how to separate good debt from bad debt, build a smart credit strategy, and shift your mindset so debt works for you instead of against you.
The Problem with the “All Debt Is Bad” Mindset
Growing up, many of us heard warnings like, “Don’t buy what you can’t pay for,” or “Debt ruins lives.” That advice makes sense for personal spending – borrowing for vacations, cars, or clothes creates a cycle of payments with no return.
But in business, avoiding debt at all costs will stunt growth. Imagine you run a bakery with an oven so inefficient it limits how many loaves you can sell. A new oven costs $15,000. Saving up $15,000 could take years, whereas financing it now means you can bake more bread, serve more customers, and use the added revenue to pay off the loan.
This is the key difference: consumer debt is often about buying wants, while business debt is about creating capacity. When you fear leveraging credit in business, you may unintentionally stunt your own growth. As you recognize this, you stop seeing debt as a trap and start viewing it as a tool.
Good Debt vs. Bad Debt for Business Owners
Not all business debt is created equal. The difference comes down to whether debt funds growth or drains resources.
Good Debt
- Creates new revenue streams or expands existing ones.
- Increases efficiency, productivity, or profitability.
- Pays for itself (and more) through measurable ROI.
Examples:
- Financing a marketing campaign that brings in new clients.
- Borrowing to buy equipment that reduces costs or increases output.
- Taking out a loan to expand into a new location with proven demand.
- Paying for continued education so you can improve your skills and knowledge
Bad Debt
- Covers recurring expenses without solving the underlying problem.
- May not generate future income.
- Leads to dependence on borrowed money to stay afloat.
Examples:
- Borrowing to pay salaries without a plan for increasing revenue.
- Taking on debt to cover rent because cash flow isn’t managed.
- Relying solely on high-interest credit cards instead of structured financing.
The difference is intention. Debt used as an investment is a lever. Debt used for survival becomes a weight.
Building a Smart Debt Strategy
Using debt wisely doesn’t happen by accident. It requires planning. Here are the key steps:
- Identify ROI Before You Borrow
Ask: What return will this loan generate? If you take out a $50,000 loan for a new product line, how many units do you need to sell to break even? What’s your timeline for profitability? Be realistic. Hope is not a strategy. Numbers are.
- Create a Repayment Plan
Debt only works if it doesn’t choke your cash flow. Map out repayment terms and stress-test your budget. Could you still pay the loan if sales dip by 20%? If not, renegotiate terms or look for alternative financing.
- Integrate Debt Into Your LIFT Systems
Here are some examples of how the four foundational business systems, Legal, Insurance, Financial, and Tax, come into play:
- Legal: Make sure loan agreements are structured to protect your business, not your personal assets. Personal guarantees can put your home or savings at risk.
- Insurance: Consider business interruption insurance so an unexpected event doesn’t derail your repayment plan.
- Financial: Track ROI carefully. Monitor cash flow and compare actual performance to projections.
- Tax: Work with your tax advisor to take advantage of interest deductions and structure payments in the most tax-efficient way possible.
- Keep Communication Open with Lenders
Lenders prefer proactive communication. If you anticipate a hiccup in repayment, let them know early. Many lenders will work with you if you’re transparent and show a plan.
Even with the best strategy, taking on debt can feel scary. That’s why shifting your mindset is just as important as the numbers.
Changing Your Relationship with Debt
Think of business debt as a tool, like a hammer. In the wrong hands, a hammer can cause damage. But used properly, it builds homes. Debt works the same way.
Consider these mindset shifts:
- From Fear to Leverage: Instead of seeing debt as a trap, see it as a lever to scale faster.
- From Scarcity to Growth: View debt not as money you lack, but as fuel for expansion.
- From Burden to Investment: Treat debt payments like any other investment in your business, with an expected return.
Many successful businesses started with debt. Starbucks, Amazon, and Tesla all relied on financing in their early years. They didn’t fear debt; they used it strategically. The lesson is not to avoid debt but to harness it wisely.
Bringing It All Together
Debt doesn’t have to be a four-letter word. When you shift your mindset and use it strategically, debt becomes one of the best tools to accelerate growth, increase profitability, and invest in your future success.
As a LIFTed Business Advisor®, my process begins with a LIFT Business Breakthrough™ Session. In this session, we’ll review the four foundational systems of your business, legal, insurance, financial, and tax, and ensure you have the support you need to make smart financial decisions, including how to leverage debt wisely.
Book your 15-minute discovery call today to get started.
This article is a service of a Personal Family Lawyer® Firm and LIFTed Advisors® Attorney. I offer a complete spectrum of legal services for businesses and can help you make the wisest choices with your business throughout life and in the event of your death. I also offer a LIFT Business Breakthrough Session, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.
The content is sourced from Personal Family Lawyer® for use by Personal Family Lawyer firms, a source believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own separate from this educational material.