Debt has a negative connotation for many entrepreneurs, perhaps due to personal experiences, cases they’ve come to know, or little information about how financial options work. What if it doesn’t go well? What if I can’t pay it back? What if I lose control of my business?
This fear is understandable, but it can also become a trap that slows growth and limits the true potential of SMEs.
It’s important to say from the start: not all debt is bad. In fact, many times, not taking on debt can be riskier than doing it well. If your business has demand, good profitability, and the ability to generate stable income, waiting to grow only with your own resources can make you miss the key moment.
The fundamental tool for these cases is financial leverage.
Financial leverage is using external financing (usually debt) to boost your company’s growth. The key is to do it intelligently, maintaining the balance between risk and opportunity. So, how do you use leverage strategically?
Knowing your real payment capacity: Before taking on any loan, you must be clear about how much you can pay each month without compromising daily operations. This involves reviewing your cash flow, your margins, and your seasonality.
Calculate the expected return: If you’re going to take on debt to buy machinery, expand your premises, etc., you’ll need to estimate how much that investment will generate for you and in what timeframe.
Assess the risks: It’s not about imagining the best scenario, but also analyzing the worst ones. What happens if income doesn’t come as quickly as you expect? Do you have a cushion or an alternative plan? Good planning for possible situations can be the difference between taking a risk and seizing an opportunity.
Choose the right financial product: A 10-year loan for machinery investment is not the same as a credit line to cover treasury peaks. This is where a good advisor can help you find the best solution for your situation.
Measuring leverage (liabilities / net worth) can give you an idea of how much you depend on external financing. A high value is not necessarily negative, but it is a signal to closely monitor whether growth is accompanied by a solid and sustainable structure.
Taking on debt is not the problem, but doing it without planning is. It’s not about taking unnecessary risks, but recognizing that, in many cases, the fear of growing is more dangerous than debt itself. Because that fear paralyzes, while a well-thought-out strategy allows you to move forward with control and vision.
Taking on debt with planning can be safer than not doing it and remaining stagnant.
For more information, don’t hesitate to request advice from our experts.
