Good Debt Vs. Bad Debt: What Does It Mean For Your Business?

At one point, that equipment loan seemed like a wise decision, and the merchant cash advance felt necessary. Now, you may find yourself questioning which debts are helping your business grow and which ones might be holding it back.

Every dollar you borrow falls into one of two categories: good debt or bad debt. The key distinction isn’t about the amount or the lender, but whether the debt works for your business or against it.

At Value Capital Funding, we have helped hundreds of business owners, like Irvin, who was able to reduce his overwhelming payments by more than half. Our “Excellent” Trustpilot rating is a result of real, meaningful outcomes, not promises we don’t fulfill.

Let’s break down good debt vs. bad debt and what you can do when bad debt starts taking over.

Good Debt: The Growth Accelerator

Good debt is financing that helps your business grow and thrive. Unlike personal debt, which might be used for consumption, good debt is an investment in your business’s future.

It is money borrowed with the expectation that it will lead to greater profits, increased productivity, or expanded capacity. This kind of debt is intended to support the long-term growth of your business. It allows you to leverage borrowed funds to achieve more than you could with your existing resources alone.

Typically, good debt comes from loans that offer fixed rates, manageable monthly payments, and clear financial benefits. Common examples include small business loans, equipment financing, or even an SBA-backed loan, which generally offers low-interest rates. These loans can provide capital to purchase assets like new equipment, vehicles, or real estate that directly contribute to revenue growth.

The key characteristics of good debt include:

• Fixed interest rates: Keeping payments predictable, which makes budgeting easier for business owners.
• Affordable monthly payments: Ensuring that loan repayments fit comfortably within the business’s cash flow.
• A clear return on investment: The borrowed funds directly contribute to the business’s ability to increase profits or expand operations.

Good debt is about strategically borrowing money to fuel growth, such as investing in new technology, upgrading equipment, or expanding your team to meet growing demand. The goal is that the debt is repaid through the additional revenue generated by these investments. This makes it a wise financial choice for long-term success.

Bad Debt: The Silent Business Killer

Bad debt refers to borrowing that negatively impacts your business’s financial health and growth. This type of debt often stems from high-interest loans, like Merchant Cash Advances (MCAs), which can quickly spiral out of control and hinder your ability to maintain healthy cash flow. Unlike good debt, which fuels growth, bad debt can become a drain on your resources, diverting funds away from key operational needs.

One of the key characteristics of bad debt is its high cost. For example, many MCAs have effective annual percentage rates (APRs) exceeding 100%, according to the Small Business Administration. This excessive cost makes it difficult for businesses to repay the principal without enduring crippling interest payments. The more you borrow through bad debt, the more you pay in interest.

Bad debt is often associated with loans that come with unpredictable, high, or escalating interest rates. These debts can eat away at daily sales or profits. This can lead to constant financial strain. Business owners struggling with bad debt may find themselves caught in a cycle of borrowing to make ends meet, only to find that their financial burden becomes increasingly unmanageable.

Over time, the payments on bad debt can start to overshadow essential operating costs, like payroll, rent, and inventory. As a result, businesses may find it harder to cover basic expenses, let alone reinvest in growth opportunities.

For this reason, it’s critical for business owners to differentiate between good debt vs. bad debt that restricts their ability to prosper.

When Smart Money Doesn’t Work as Planned

You may have taken out a loan a few years ago with great terms, thinking it would support your business growth. However, over time, unexpected challenges may have emerged. Perhaps a key client delayed payments, or your industry faced sudden changes—like the impact of the 2020 pandemic on restaurants.

Good debt can become problematic when:

• Your repayment schedule doesn’t align with unforeseen challenges.
• Cash flow struggles to cover both growth and loan payments.
• What once seemed manageable becomes overwhelming.

This is a common issue for many business owners. You might have multiple Merchant Cash Advances (MCAs) draining your profits. We can help simplify this by consolidating your debts into a single FDIC-backed loan at 9% APR, which can reduce your payments by up to 60%.

Our low-cost business debt relief, FDIC Bank Financing, and MCA debt restructuring programs are designed to help in these situations. Even the best-laid plans may need adjustment, and we’re here to provide solutions.

How We’ve Helped Other Businesses

At Value Capital Funding, we’ve helped businesses overcome significant debt challenges and enabled them to thrive again.

Reiner M. had been struggling with MCA debt and was feeling the weight of financial pressure. When he reached out to us at Value Capital Funding, he was impressed by our honest feedback and helpfulness. We were able to assist a client in saving over $130K in MCA debt, which played a significant role in turning their business around.

Another client, Emily, faced overwhelming debt due to the pandemic. With our assistance, she was able to navigate this challenging situation and find a viable solution. Emily was thrilled with the level of support we provided, and the outcome far exceeded her expectations. This gave her the financial relief she desperately needed.

Stories like these highlight our commitment to helping businesses regain control of their finances. We give them a fresh start with tailored debt relief solutions.

Your Path to Financial Freedom Starts Here

Lying awake and worrying about debt is not how you should run your business. The weight of those payments does not have to follow you everywhere. Whether you are drowning in high-interest loans, stuck in a cycle of merchant cash advances, or need clarity on your options, we have your back.

At Value Capital Funding, we offer completely free consultations with no strings attached or hidden fees. We do not seek the perfect credit score requirements. You will get straightforward advice from a team that has helped hundreds of business owners like you take back control.

Please contact us to schedule your free debt relief consultation. Let us create a custom plan to free your business from financial stress. You have carried this burden long enough.