24.6 C
Lagos
Saturday, October 31, 2020

The truth about Entrepreneurial Debts and How to Steer Clear of it

- Advertisement - data-full-width-responsive="false">

As an entrepreneur, you may have probably heard about “good debts” and “bad debts.” In fact, the concept of good debt and bad debt is not really so if people think that it is good to maintain debts. If you really know the concept of debt, ‘good debt’ doesn’t exist.

- Advertisement -

Then, why it is called a good debt is that it is only comparatively so if the debt is made for some productive purposes in business or personal life.

So, we can see that the actual problem is people’s misunderstanding or misconception about the definition of debt. Once if it is clarified, it may free you up also allow to perform and produce at a better level as an entrepreneur.

False definitions of debt holding us back

Many out there borrow money to make big purchases like a car, home, or business resources. However, there are a lot of others who think that you are doing evil by borrowing money.

A monkey on your back is always telling that an evil debt will eat out your peace of mind. They say “you may never feel safe with debt in hand and cannot be free to enjoy our life if in debt.” They think that the associated stress and guilt will harm one’s productivity too.

The false definition for debts is pumping in from all directions, and it is quite natural that one gets confused while thinking of debt.

Some finance gurus you see on TV or at an office meet-up may tell you to avoid borrowing money at any cost. A few are saying that you have to build your house with cash in hand up front, alas! It is something even the Facebook director Mark Zuckerberg may not do.

Even though the finance gurus are somewhat correct about the adversities a debt cause in your business, they are wrong at many aspects as like saying that borrowing money for your new house may put you into bad debt.

The mortgage may be a liability, but at its cost, you have taken possession of a new asset which cannot be ignored. If your house is worth the value of the mortgage, which is actually the case, then you hold something known as “equity,” which is just opposite to debt.

What is debt?

So, what exactly is the right definition for of debt?

Advertisement
data-full-width-responsive="true">

In fact, debt isn’t all about owing money; it actually owes more than what you actually own. We are in debt, in its true sense, only when your liabilities are greater than assets.

One shouldn’t avoid real debt (as to having more liabilities compared to assets), but it is okay to have incurring liabilities (as to owing assets to someone else), which may be beneficial to ensure productivity and prosperity.

So, in many situations, the actual way to increase prosperity in business or personal wealth is to keep a fine balance over our liabilities and not to avoid it.

Here’s the catch as to where you want to be concerned and where you may feel reassured about borrowing money.

You should understand that not all debts are created equal. There are some typical cases which needed to be identified as a consumptive liability. Say for example:

  • If you have not current in a financial situation to afford 5-star dinner every weekend, but you do it anyway and put it into credit, then you are succumbing to a consumptive liability. You are pushing yourself deeper into bad debts.
  • If you own a car which causes you problems, but you haven’t paid off for it yet, then it’s a consumptive liability as it is adversely affecting your productivity.

The thumb rule, as put forth by experts of, is that if liability is not adding to your inflow of cash, then it remains as a consumptive liability, which should be avoided.

ON the other hand, it is ideal to secure productive liabilities as these always will leave you wealthier than you’d been before. Some examples of productive liabilities include educational loans, business loans, any line of credit for business expansion, etc.

Advise to business owners to steer clear of debts

It is found that about 60% to 70% of the small businesses tend to fail in their first ten months itself.

The reasons for such failure are many ranging from incompetent business plans, bad location, marketing flaws, etc. However, one of the biggest killers of any one’s business dreams is poor management of their debts.

In fact, there are no such foolproof guidelines for business owners to stay out of debt, but you can always explore these to mitigate the risks involved and to stay off those 40,000 businesses filing bankruptcy each year.

Advertisement
data-full-width-responsive="true">

#1. Consider the funding options

Before running to a bank for a business loan or approaching a private lender, consider whether you are able to repay it properly.

If not sure, then start exploring all alternative funding options and innovative methods like crowdfunding or a startup business incubator. All these funding options may be ideal to avoid multiple loans and suffering larger interest rates.

#2. Educate yourself on financial aspects

If you find that a loan may work the best for your type of business, then do some research before considering a loan which is approved for. Learn all the aspects of the loan, understand the terms and conditions specifically, and check for terms like a pre-closure penalty or hidden processing charges, etc.

#3. Devise a repayment strategy

Once if you avail a loan for business, it is very important to sit back and do proper planning and strategizing for repayment of the loan.

The major portion of the strategy will be to create a proper budget which you should stick to until repayment of the loan is made. You may also analyze how your business may increase revenue and reduce the overhead to reach to a better financial position.

These detailed plans will help you be more confident and also makes the process repayment informed and easier.

It is a fact that uncontrollable debts may kill the profitability of any business and eventually trash it down to the ground. Creating practical and workable strategies on how to stay off debt effectively is the key to protect and grow and any business.

Author Bio:

John Bell has been writing articles on Social Media, skilled business consultant and Financial Advisor for the last few years. In this post, he has written about the benefits of Social Media Marketing, Business, Finance as well as the features related to the same. For more details please visit here.

Kingsley Felixhttps://kraftysprouts.media
Based in Port Harcourt, Nigeria. I am the founder of Krafty Sprouts Media, LLC (US), i make sure thing run smoothly and well organized in our organization. Follow me on my social media platforms.
- Advertisement -

Trending Now

Kuda Bank Mobile Banking App: Features and Download Links

They are the only online bank in Nigeria; They are the only digital bank that works mainly on smartphones. They do not...
- Advertisement -

10 Best Places to Download Bollywood Movies

Do you spend hours watching Bollywood movies as I do? Have you been in search of the perfect sites to download the...

Startimes Subscription Prices, Packages and Channels List in 2020

StarTimes Nigeria is one of the popular cable TV providers in Nigeria. This service is a subsidiary of a Chinese based company...

GB WhatsApp, WhatsApp Plus and OG WhatsApp Tips and Tricks

Checkout the new GB WhatsApp Tutorial. Hello, welcome to WhatsApp Plus, OG WhatsApp and GB WhatsApp tips and tricks. For the sake of this article,...

GOtv Error Codes: How to Clear and Resolve GOtv Errors

If you are a GOTV user, you have probably encountered one or two GOTV errors, and these errors are preventing you from...

7 Best Offline Racing Games for Android Users in 2020

Are you a real gamer? If you are one, then you will know how exciting it can be to experience the adrenaline rush that...

15+ of the Best Tecno Phones to Buy in 2020 [Updated]

We are almost halfway through the year and many phones have been released by Tecno Mobile and we have assembled a list of the...

StarTimes Customer Service Contact and Simple Error Fixes

StarTimes has fast become one of Nigeria's most used cable or digital Pay Tv. Despite its vast customer reach, the company has...

New GOtv Packages, Channel List and Price for 2020

GOtv and DStv are both owned by Multichoice, and there's no arguing the fact that they have proven to be the largest...

Best Low Size PC Action Games For Your Old PC/Laptop With Low Specs

Gaming time is one our favorite time and nothing beats the ability to play high-quality games on our PCs but like some of our...

5 Best Under 15,000 Naira Smartphones in Nigeria

Smartphones are currently like the way of life today, and everybody needs one of them devices. The need to stay up to...
- Advertisement -

Related Posts

First Bank *894#: Quick Banking With First Bank USSD Code

As Nigeria's oldest bank, FirstBank has chosen not to be left out when it comes to implementing trending technological features that will benefit its...

6 Popular Nigerian Brands in Africa

The African Business Magazine has released the curated list for Africa’s Top 100 Brands in 2020. Although the general list shows that even African...

What Are the Most Beneficial Ecommerce Strategies? Tips From Famous Brands

Being successful is too different for everyone of us. We have travelled too long path to be where we are now. The point is...

5 Critical Questions You Have to Answer Before You Build Your Website

Building an online business identity from the roots is as important as your very own existence in the real world. That is the reason...

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.