Not all debt is bad. Business debt that generates returns above its interest cost can accelerate freelance growth. Learn which types of business debt make sense and how to evaluate any debt decision.
Personal debt used to fund lifestyle is almost always destructive. Business debt used to generate more income than it costs can be a growth accelerator.
The key question: Does the debt generate a return higher than its interest cost?
Equipment financing: A $3,000 professional camera at 8% interest generates photography income far above the interest cost. The equipment is a productive asset.
Professional development: A $2,000 course at 12% interest that enables raising rates by $20/hour pays for itself in the first month at increased earnings.
Business line of credit: A $10,000 line of credit at 10% costs $83/month in interest. If it enables you to take on larger projects that require upfront expenses, it earns far more than it costs.
Cash advance loans at 50-100% effective APR: Never.
Personal credit card balances for business expenses: Only if you can pay in full monthly.
Borrowing to cover operating shortfalls without a plan to increase income: Debt without a path to repayment.
Before taking business debt, answer:
1. What specific revenue or cost savings does this debt enable?
2. What is the expected return (in dollars) from this debt?
3. What is the interest cost (in dollars)?
4. Is return significantly greater than interest cost?
If yes: Consider it. If no: Do not take the debt.
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