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What is debt financing?

On Behalf of | Dec 30, 2020 | Business Law

To get your business started in California, you’ll need to cover the costs of running it before you start making a profit. For some business owners, it could be a year or two before they start seeing a return on their investment. If you’re like most people, you probably don’t have thousands of dollars sitting around in your bank account. How can you finance your business in those challenging early months?

What is debt financing?

Debt financing is a common way of funding your business until you start making a profit from your products or services. The process is similar to taking out a car loan or applying for a mortgage. You’ll go to the bank, apply for a loan and use that money to support your business for the next several months. You may need to provide financial statements and other documents before your loan is approved.

Debt financing can help you get your business off the ground without searching for investors or saving up for a decade. Unlike investors, the bank doesn’t own part of your company. Once you’ve paid off the loan, the partnership is over. You can also deduct the interest that you pay on your business loan when you file your taxes.

However, you’ll have to keep in mind that a business loan is a form of debt like any other. If you can’t keep up with your payments, your credit score may tank, and you’ll end up having to close your business. Talk to your attorney for more information about business law.

When should you hire an attorney?

You don’t want to wait until you’re facing a lawsuit to hire an attorney. Legal challenges can arise at any time when you’re running a business, and it’s important to have a lawyer on your team who can defend you in court.

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