Debt Financing: Is It Really Necessary For Business Growth?

September 21, 2017 by CNH Finance, LP in category “Financing”

Debt financing is the conventional solution for business owners who want to expand and grow operations. Unfortunately, traditional debt financing is not always the answer. In order for businesses to maintain their momentum without placing a strain on finances, there must be a better course of action than taking out loans.

Debt Financing Is Becoming An Outdated Model

Debt financing is not always a good fit for a growing business. Over the past few years, we have seen more alternative financing methods come to the forefront. Angel investors, crowdfunding, and more have proved to traditional lending institutions that businesses can launch and grow without the need for debt financing. Loans do not provide a continued or renewable source of capital. Loans offer one-time financing in exchange for debt, which impacts credit ratings. Once the funds are used, the balance of the loan must be repaid withing the terms of the agreement. However, traditional loans cannot be paid before the terms of the agreement end, otherwise hefty prepayment penalties are triggered. Businesses that use debt financing are forced to carry their liabilities to term. Having debt on the balance sheets means revenue, that could otherwise be reinvested in the business for growth, goes toward paying off loans instead. Traditional debt vehicles actually hinder business growth, instead of allowing entrepreneurs to maintain momentum. There simply has to be a better way of promoting growth without saddling business owners with unnecessary debt.

Finding Sources Of Capital Within Your Business

One of the ways in which businesses are sidestepping debt financing is with lines of credit structured around the value of assets they own. Asset based financing uses the value of items such as receivables, inventory, vehicles, machinery, equipment, and more to create a revolving line of credit. Businesses can draw upon the line of credit as needed, without the risk of taking on debt. The best part about asset based funding is in how it promotes business growth. As businesses make more sales and acquire more assets, the amount of funding available through asset based financing also increases. Asset based financing allows business owners to make a break from traditional loans, while still getting the funding they need to grow successfully.

At CNH Finance, we specialize in asset based solutions for growing businesses. We believe businesses should be able to grow without being held back by debt. To learn more, contact our offices today.

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