Debt

Debt is a form of borrowing money from other sources such as individuals, organizations or companies. In most cases, it comes with an agreement to repay the amount of debt that was originally borrowed, along with any necessary interest or fees associated with the loan.

By taking on debt, businesses are able to secure necessary capital for their operations and organizations can invest in important opportunities that will lead to growth and success.

A Scenario : Understanding Pro’s & Con’s of Debt

John owns a small outdoor retail store and has been in the business for five years. He has gained loyal customers, but now wants to expand his stock to include more camping gear. To do this, he needs additional working capital so he can increase his inventory.

John took out a loan from the bank in order to increase his inventory. As a result, he was now liable to pay back the borrowed amount with interest over an agreed-upon period of time. This loan came with debt obligations that had to be met by John.

John has done well so far by making timely payments and even paying off the debt quickly thanks to his increasing sales. Unfortunately, if he doesn’t meet his desired sales targets, he may not be able to make the necessary loan repayments on time. This can then lead to stress and weaken his credit score.

In this scenario, John has opted to use debt as a way of financing his business expansion, however this must come with the commitment to meet loan payments and the risk of facing financial pressure if sales do not reach expected outcomes.