How to Use Your Own Debts to Fund Your Business To borrow or not to borrow? That is the question. And it's a pretty difficult one to answer, too, especially if you need money but are averse to debt. However, contrary to popular belief, not all debts are bad.
By Jorge Contreras Edited by Micah Zimmerman
Opinions expressed by Entrepreneur contributors are their own.
To borrow or not to borrow? That is the question. And it's a pretty difficult one to answer, too, especially if you need money but are averse to debt. However, contrary to popular belief — not all debts are bad. If you're an entrepreneur or planning to start your own business but have closed yourself off from borrowing, you might be missing out on a good financial opportunity.
You see, debts can be classified into two categories: the good and the bad. Good debts add value to your life; bad debts only acquire interest over time. Bad debts are liabilities, while good debts can be used to grow your assets. Now if you have a business and you're looking for more funding, you might want to consider getting into debt. Read on to find a few options you can use to get started.
Related: Dealing with Debt as an Entrepreneur
Getting a business loan
Launching a business requires money, and sometimes you, as an entrepreneur, might have to get creative just to get financial support. Sure, you can self-fund or rely on loans from friends and family during the initial stages. But as your business expands, you may find that these options are minimal. In these cases, you might want to turn to business loans offered by banks.
Business loans can give you access to additional capital that you can use to cover business expenses such as rent and utilities. You can also use it to fund necessary purchases like machines you need for your operations.
However, there's a caveat here: applying for a business loan can be difficult. And it's especially true for new business owners. Most banks will refer to your business credit history as a basis for approval. Sometimes, they'll even have to examine your personal finances. All of these means that your financial performance needs to be excellent because it would be difficult to get approved if they aren't.
Related: 10 Ways to Fund Your Small Business
Utilizing a business credit card
Aside from getting business loans, you can also apply for a business credit card to finance your venture. A business credit card can give significant benefits that personal cards don't. For one, it'll give you a better chance of getting approved for business loans.
When you use your business card for purchases, you're acquiring more points for your business credit score. You can't do that with a personal credit card.
Now if you've heard of the advice to get a business credit card before, but you're not doing it yet because you're afraid of the interests, there's a strategy we can teach you that will not only help you maximize your card's benefits but will also give you lower interest rates on it. This strategy is called balance transfer.
Related: 3 Questions You Must Ask Before Securing a Small Business Credit Card
The "Balance Transfer" strategy
Balance transfer is when you transfer money from your business credit card to another credit card with a lower interest or annual percentage rate (APR). With this, you will now have more finances to fund your business, and you'll even get more time to pay off the debt without incurring additional interest!
To do this, you must first find a business credit card with a good balance transfer offer, then request a balance transfer from your business card to your new card. The new credit card company pays off the transferred balance and puts it on your new card. Most banks that offer balance transfer cards even offer 0% APR for the first year, which you can use to your business advantage.
So you see, there are many ways you can use liabilities like debts to add value to your life. You just need to remember that the keyword here is "leverage." When you leverage loans or credit cards to propel your business to new heights, you're actually using other people's money to grow your own. And that's the best way to turn your bad debt into a good one.
By the way, do you know what type of business can benefit most from the funding strategies we've mentioned? You should try it on short-term rental businesses like Airbnb.
Related: 7 Steps to Reduce Business Debt in 90 Days
Using debts to start subleasing Airbnbs
Now I've been an entrepreneur for a long while now, and I can tell you so much about what you can do to grow your business. But out of the ventures I had over the years, I have to say that I have a favorite: launching short-term rentals on Airbnb.
Launching an Airbnb business gives you the potential to earn from an asset that you already have but aren't using yet. And if the systems are automated correctly, it will even allow you to go hands-free in the business. In short, passive income.
But you know what I like best about this business? It's because I could start it even if I didn't have properties. And I did it through subleasing. The subleasing method is where you can rent other people's properties and ask the landlord if you can use them as a listing on Airbnb.
Then I used the Balance Transfer strategy to fund the business. I used that money to pay for the rent, the deposit, and the furniture to launch a new Airbnb. Then I took the profits from my Airbnb to pay off the credit card. And I repeated the process over and over until I reached my financial goal. This is how I got my first million. You might want to try it for yourself too.
Related: How to Start an Airbnb Business Without Owning Property
So to sum it all up, not all debts are bad. If you want to launch or scale your business fast and need funding, one of your best options is to borrow. And the keyword is leverage, so don't be afraid to use that money to work for you — like using it to sublease properties for Airbnb.
