BizSugar.com › Finance › The Cost of Debt When Growing a Business

Many small business owners borrow money to start and grow their business. And is often the case those same business owners find themselves hitting credit limits established by banks and other lenders causing enormous growing pains for the business. Simply stated, running out of business capital when you’re growing a business is difficult at best.

Although debt financing offers a business owner the least costly form of capital to grow and maintain a business, a business owner may find himself in a position where his business is growing so rapidly and he’s unable to borrow enough money to adequately finance or capitalize his business. We call this situation hyper-growth and it often forces the business owner to add another form of more expensive (borrowed) capital to the balance sheet.

Before we explore how the cost of debt impacts how a business may grow, let’s establish how to compute its total cost.