Flip to any popular business channel on your TV or station on your radio and it is quite likely that you will stumble across a discussion on debt instruments and interest rates.

You might think that debt is bad no matter what type it is. This may be true, but look at it this way: some companies willingly take on debt in order to foster growth and advancement. This is a normal and healthy aspect of business. However, debt that comes laced with sky high interest rates can usually be labeled as the “the wrong kind” of debt. As you can probably imagine, having the wrong type of debt, or too much of it can be harmful to your business\’ long term health and success.

What is the wrong kind of debt?

Credit card debt, vehicle loans/leases between yourself and a dealership, personal loans with high rates, maintaining a high mortgage balance – these are all examples of \’bad\’ debt. However, bad debt can be couched in even simpler terms. It is any debt that either is not necessary or can be refinanced on more favorable terms.

In order to protect your business from having the wrong kind of debt, you should not only review all your outstanding loans but also re-evaluate how you enter into new ones. For existing loans, you may work to restructure them so the monthly payments are in line with your company\’s cash flow projections. Or, you could simply try to refinance it at a lower rate. Reorganizing your debt and nailing down attractive options that will benefit you in the long run won\’t take place over night. As they say, Rome was not built in a day, and neither will you shore up your debt in a short span of time.

If you have unavoidable and expensive debts, such as credit cards, take a hard look into financing options. If you know who to talk to and what to say, many credit card companies may be willing to work with their loyal and \’on the ball\’ customers. One thing that looks especially good to creditors is if your company is profitable, or stands to make significant profit in the near future. Being in such a position leaves creditors inclined to regard you favorably. This may come in the form of better loans with lower interest rates, smaller payments (either by waiving payments outright or reducing the monthly/annual amount owed).

Having the wrong type of debt, or too much of it can be harmful to your business\’ long term health and success. Make it a point to regularly review the amount of debt your business carries and to ensure it doesn’t fall into “the wrong kind” of debt category. Going through this exercise will not only save you money in the long term but also adequately handling your repayments means that you are not over leveraged and when new opportunities for expansion come your way, you are able to avail them.

Author Bio: John Hemmendinger, CPA specializes in providing accounting and tax services to small business owners and professional practices in Cedar Knolls, NJ. For more information, go here: http://www.hemmendinger.com

Category: Finances
Keywords: Accounting, taxes, business advisor, CPA