How to Use Commercial Loans to Establish “Good” Debt
Some roads to building reported business credit are better than others.
As a lender for over 20 years, we’ve seen our share of customer debt…
But not all debt is bad. As a business owner, it’s essential to understand how debt can be beneficial for growth. Often it behooves a business to borrow money (even when they’re a startup) and build business credit. However, some roads to building reported business credit – “good” debt – are better than others. This is where Oakmont Capital Services can make financially beneficial recommendations.
What’s the Good Kind of Debt?
If you subscribe to the saying, “you have to spend money to make money,” the concept of taking on debt will be easier to digest. If the equipment you purchase via a loan helps you generate revenue and increase efficiencies, thus reducing costs, it’s worthwhile. Good debt enables a business to manage finances more effectively and to leverage prior reported borrowing.
Per an experienced Oakmont Capital Services Business Development Officer and Certified Lease & Finance Professional, there are three significant benefits to using commercial loans to build good credit:
1. It’s Not Personal
True commercial loans used to purchase equipment for a business do not get reported on personal credit reports. These types of loans don’t impact the business owner’s personal debt to income ratio. This means when applying for a personal mortgage or auto loan, a business purchase won’t be tied to or impact a private investment.
“I’ve seen scenarios where business purchases are linked to personal credit, and it has created challenges. One customer couldn’t secure a $15,000 car loan because their debt to income ratio was skewed due to a large commercial truck purchase on their personal credit. Securing a commercial loan prevents these obstacles by separating professional debt from personal credit.” – OCS Business Development Officer
2. Get a Tax Break
With commercial loans, the Internal Revenue Service (IRS) allows your business to expense the interest and take depreciation on commercial equipment. This can help to offset some tax liabilities come April 15 as well as helping with cash flow throughout the year. Wondering what tax break may be available to you? Take a look at our article on Section 179 to more learn about your options!
3. Protect Yourself
Tied to an LLC or Corporation, a commercial loan indicates a company purchase. Should there ever be an incident with the equipment, you, as a business owner, are personally protected from liability under the umbrella of your company. Stated simply, commercial loans protect your personal finances.
Pro Tip: Build Credit
At Oakmont Capital Services, we report to business bureaus, helping our customers build business credit. Not all commercial lenders (banks, credit unions, finance companies) report. Why is reporting so important? Every year business credit becomes more and more critical in the underwriting process of a commercial equipment loan.
Remember, good debt for business occurs when a loan has the potential to increase your net worth. If your business is in the market for a piece of equipment that will help your company grow, consider a commercial loan to obtain the machine you need while building “good” business credit and protecting you, personally.
Have questions regarding commercial loans or how to establish good credit? Contact an OCS finance professional at firstname.lastname@example.org today.
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