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As a small business owner, you have big dreams for your company. With the right resources, you can achieve the success you’ve always envisioned. That’s where debt financing comes in. 

Well-structured debt can be a powerful tool for growing your business and realizing your full potential. When debt is timed to match the useful life of an asset, it provides the fuel you need to expand, innovate, and thrive. If you’re ready to take your business to the next level, keep reading to learn how debt financing can help you turn your dreams into reality.

What is debt financing?

Debt financing is a type of business funding where a lender provides money in the form of a loan with the expectation that the borrower will repay the loan with interest. This type of financing is typically collateralized (or secured) with something owned by the business, such as a building, piece of equipment, or a contract. 

Unlike other forms of financing, such as those from individual investors or crowdfunding sites, debt financing does not require giving up equity or a percentage of ownership in your business. Small business owners often turn to banks, credit unions, and Community Development Financial Institutions (CDFIs) like Grow America to apply for debt financing.

Advantages of using debt financing for growth

Debt financing is the fuel that small business owners need to expand, grow, and increase revenue. Here’s why approximately 35% of small businesses apply for debt financing each year.

  • Debt financing allows you to retain full ownership and control of your business.
  • Debt financing helps keep expenses predictable, as your monthly loan payments are typically a consistent amount.
  • When you invest the funds obtained through debt financing wisely into growing your business, the return generated can exceed the total cost of the loan, leading to increased profits. 

For many businesses, not having enough money means they can’t grow or move forward. If you want to achieve larger profits, properly structured debt financing is often the answer.

When to Consider Debt Financing

Debt financing is a good option when your business is growing, and you realize that increasing headcount, launching new products, or purchasing property will help you expand, but you don’t have the funds to do so out of pocket. 

Signs that you’re ready for debt financing include consistent growth, the ability to comfortably pay bills and existing debt, paying yourself a salary, and being able to pay all taxes. If your business is not producing a profit or you have difficulty repaying the loans you already have, it’s better to focus on improving your margins and operations to position your business for growth and loan readiness than to borrow again.

From retail to restaurants: Industry-specific debt financing strategies

Different industries have unique needs and challenges when it comes to growth and expansion. Debt financing can provide the capital necessary to address these specific requirements and help businesses in different industries thrive. Let’s take a closer look at how debt financing can benefit different types of businesses:

  • Retail: If your retail business is growing, debt financing can help you purchase more inventory or introduce new product lines to attract customers, boost revenue, and avoid products going out of stock.
  • Restaurants: Debt financing can help restaurants open new locations, renovate existing spaces, or upgrade kitchen equipment, allowing them to serve more customers and generate higher profits.
  • Construction: Construction companies can use debt financing to cover upfront project costs, such as materials, equipment rental, and crew wages, enabling them to take on more contracts and expand their operations.
  • Service-based businesses: Debt financing can provide the funds needed to hire additional staff, improve capacity, and take on more clients without straining cash flow.
  • Manufacturing: By using debt financing to purchase property, manufacturers can build equity, reduce monthly expenses, and gain more control over their production process, ultimately increasing efficiency and building a more valuable business.

The bottom line: Debt financing is a critical tool for expansion and growth

Remember: When you have the right opportunity and the right plan, properly structured debt can be the perfect solution for funding growth. By partnering with reputable lenders like Grow America, you can access the capital you need to take your business to new heights. Contact us for a free consultation to explore how debt financing can help your small business succeed.