Borrowing to Grow: When Business Debt Helps — and When It Hurts
I once worked with a business owner who came to me feeling stuck. Revenue was coming in. Customers were still buying. On the surface, the business looked active. But the financials told a different story. The business was not profitable. Each year, expenses exceeded revenue, and debt balances were increasing.
He was debating whether to close. “If I shut it down,” he said, “I won’t have the income to pay my debt.”
It sounded reasonable. The business generated enough cash to make minimum payments. But while he was paying down portions of the debt, the overall balance kept growing. The longer the business operated without addressing its fundamentals, the deeper the gap became. What felt like survival was actually a slow accumulation.
This is one of the hidden complexities of business debt. Borrowing is not inherently good or bad. It depends on what it is supporting — and whether the underlying model is strong enough to carry it.
When Debt Can Help
Many businesses grow because they gain access to capital. Used thoughtfully, debt can unlock opportunity. Borrowing can make sense when it supports something concrete and measurable — for example:
Equipment that increases production capacity and margin
Inventory backed by confirmed demand
Expansion built on steady, proven cash flow
Hiring tied to signed contracts
In these cases, debt is not compensating for weakness. It is accelerating a working system. When capital is tied to real traction, it can shorten timelines and expand capacity responsibly.
When Debt Hurts
Debt becomes risky when it is used to compensate for instability. Common warning signs include:
Borrowing to cover ongoing operating losses
Taking on loans before product-market fit
Using new debt to service existing debt
Relying on high-interest, short-term financing for routine expenses
In these situations, debt does not fix the problem. It amplifies it. Debt introduces fixed obligations. Fixed obligations reduce flexibility. Reduced flexibility increases pressure — and pressure can distort decision-making. What begins as a temporary bridge can quietly become a structural burden.
Growth Debt vs. Survival Debt
A useful distinction is between growth debt and survival debt.
Growth debt supports a visible opportunity — confirmed demand, steady revenue patterns, or a clear bottleneck limiting output. There is reason to believe that additional capital can generate additional income. Survival debt keeps a business operating when the underlying numbers are not yet sustainable. It buys time, but it does not improve the fundamentals.
There is never complete certainty in business. Borrowing is always a risk. The goal is not to eliminate risk, but to understand it clearly. The more the decision relies on hope rather than traction, the more fragile the position becomes.
Questions to Ask Before Borrowing
Before taking on business debt, it helps to pause and ask:
What specifically will this capital unlock?
Is there validated demand behind this expansion, or am I projecting?
What happens if revenue comes in 25–30% lower than expected?
Can the business comfortably handle payments during a slow month?
Is this debt supporting growth — or covering losses?
These questions do not eliminate uncertainty, but they make assumptions visible.
Practical Ways to Reduce Risk
If borrowing makes sense, there are ways to reduce exposure.
Borrow in phases.
Test your growth assumption with a smaller investment before scaling further.
Tie borrowing to triggers.
Borrow when contracts are signed, deposits are secured, or revenue thresholds are met — not purely on projections.
Stress-test your numbers.
Model conservative scenarios. If the business cannot withstand lower revenue or higher costs, the debt may be too aggressive.
Be cautious with structure.
Short-term, high-interest products compress cash flow and remove breathing room. The structure of the debt matters as much as the amount.
Protect personal stability.
Maintaining some external income or preserving an emergency cushion can prevent business pressure from becoming a personal crisis.
Define your threshold in advance.
Decide what metrics would signal that the plan is not working. Pre-committing reduces emotional drift later.
The Human Side of Leverage
Debt is not only a financial tool. It is a psychological force.
Monthly obligations influence how founders think. They can reduce experimentation, increase stress, and shift focus toward short-term survival. Even profitable businesses can feel constrained if obligations are too heavy relative to their stability.
Entrepreneurship already carries uncertainty. Adding fixed financial pressure requires discipline and clarity.
A Balanced Perspective
Access to capital is often necessary. Many businesses would never expand without borrowing. At the same time, debt magnifies whatever foundation already exists. If the model is strong, debt can accelerate growth. If the model is fragile, debt accelerates fragility.
The question is not whether debt is good or bad. The question is whether it is being used with clear intent, realistic assumptions, and a structure the business can truly support.