Why you shouldn't use credit in business

[Yan1]

We all know that in most cases one ways of progressing our business is loan or Dept(credit). Credit can be a useful tool for businesses when used wisely, but it's important to be aware of the potential risks involved. Here are a few reasons why credit should be avoided or used sparingly in business:

Interest and fees: When a business uses credit, they will typically be charged interest and fees on the amount borrowed. These costs can add up quickly and reduce the overall profitability of the business.

Debt: Taking on too much debt can put a strain on a business's finances and make it difficult to meet other financial obligations. In extreme cases, excessive debt can lead to bankruptcy or other financial problems.

Cash flow issues: If a business is relying heavily on credit to finance its operations, it can create cash flow issues. This is because the business will need to make regular payments on the credit, which can eat into its cash reserves and make it difficult to cover other expenses.

Credit rating: When a business uses credit, it can affect its credit rating. If the business has a poor credit rating, it may be more difficult to obtain credit in the future or to get favorable terms on loans or other financing.

Lack of control: When a business uses credit, it can be difficult to control spending and stay within budget. This can lead to overspending and financial problems down the road.

Of course, there may be situations where credit is necessary or beneficial for a business, such as to finance a major purchase or to cover unexpected expenses. However, it's important to use credit wisely and to avoid taking on more debt than the business can handle.

 

[moonchild]

I do not think there's any issue in using credit in business, because most business are build with Investor's funds and they have to grow or take them at a point in their career so the only thing you need to pay attention to is you shouldn't take credit that you know you cannot pay back.

You should audit your business before applying for a business loan and if you do you should have a plan on how to pay back else you will end up not payng back and also hurting your business and credit score when you need a loan again

 

[Etini]

I don't believe a small business should be financed on credit because of it's huge risks. There are so many uncertainties that can affect the revenue of a small business making it very difficult to payback loans.

When I say these things. I say it from the standpoint of experience having been in business for years now. There was a time I took a loan to help run my poultry farm. And it backfired big time. Business challenges and uncertainties can be better managed without the burden of a loan to repay but with that burden, everything becomes complex ans difficult.