The Strategic Use of Business Debt
Debt is often feared, but strategically it can be a powerful lever for growth. Using OPM (**Other People's Money**) allows you to expand faster than your current cash reserves would permit—provided the ROI of the expansion is higher than the interest rate of the loan.
Repayment Capacity
The **EMI** should never exceed your business's net monthly cash flow. Use our [Cash Flow Forecast Tool](/tools/business/cash-flow-forecast) to ensure you have breathing room.
Processing Fees
Don't just look at the interest rate. Processing fees and hidden charges can add 1-3% to the **Effective Interest Rate** (EIR) of the loan.
Three Rules for Taking Business Loans
Expansion debt is a tool, survival debt is a trap. Follow these three rules before signing any agreement:
Debt for Assets, Not OPEX
Use loans to buy equipment, inventory, or property. Never use debt to pay salaries or recurring utilities unless it's a short-term bridge round.
Compare Total Interest
Two loans can have the same EMI but different durations. Always check the **Total Interest Payable** over the life of the loan to see the real cost.
Maintain Debt-to-Equity
Ensure your business isn't "over-leveraged". Investors prefer to see a healthy ratio of owner's equity versus borrowed capital.