Good Debt, Bad Debt — How to Borrow Smart for Growth

IntroductionDebt. For most business owners, the word alone raises stress levels.

But here’s the truth: not all debt is bad. In fact, used strategically, debt can accelerate growth, smooth cash flow, and free up your time to focus on what really matters.

The key is knowing the difference between good debt and bad debt and using a simple decision framework to tell them apart.

🧠 1. The CFO View of Debt

CFOs don’t fear debt they manage it. They know that sometimes borrowing can be a smart financial lever if it’s aligned with return and timing.

Good debt helps a business:

• Increase efficiency (new equipment, automation).

• Drive new revenue (marketing campaigns, hiring capacity).

• Smooth cash timing (cover receivable gaps, not losses).

  
  

Bad debt, on the other hand, usually hides a deeper issue overspending, lack of forecasting, or poor pricing.

💸 2. How to Spot the Difference

Here’s an easy test you can run before taking any loan or using a credit line:

Question	Good Debt	Bad Debt
Purpose	Expands revenue or saves cost	Covers losses or emergencies every month
ROI	Generates measurable return	No plan for payback
Timing	Short-term bridge	Chronic cash shortage
Confidence	“I know the numbers.”	“I hope this works.”

If you answer “no” to any ROI or clarity questions it’s likely bad debt in disguise.

💡 Finanzeal Tip: Always tie borrowing to a plan, not panic.

🧮 3. The ROI Rule

Before borrowing, calculate your Return on Debt (ROD) yes, that’s a thing.

Use your Profit Driver Calculator to test scenarios:

• If you borrow $50,000 at 8%, what does it earn?

• If that spend increases profit by $10K/year, it’s a 20% ROI worth it.

• If it just plugs a hole, you’re digging deeper.

🧩 4. Case Study: The Strategic Loan That Paid for Itself

One Finanzeal client a construction firm needed $75K to buy new equipment. They hesitated, worried about the interest. We ran the numbers: the new equipment would save 120 labor hours/month about $12K in cost.

The loan paid for itself in under 7 months.

That’s good debt in action strategic, not reactive.

⚠️ 5. How to Avoid Debt Burnout

Even smart borrowing can become risky without discipline. Follow these CFO rules: 

1️⃣Keep total debt service under 15–20% of monthly revenue. 

2️⃣Don’t use short-term loans for long-term assets. 

3️⃣Track repayments monthly. 

4️⃣Always link borrowing to specific ROI metrics.

Debt isn’t the enemy. Debt without a plan is.

Used right, it can buy time, growth, and leverage the three things every business owner needs more of.

Use the Profit Driver Calculator to test your next borrowing decision before signing anything. Data makes confidence possible.