The good debt approach to business expansion

BDO

Posted at Nov 17 2023 11:57 AM

Photo source: BDO
Photo source: BDO

Is it time to take your business to the next level? If you have been thinking about growth and innovation for your business, you are on the right track. But expanding your business requires not just vision and determination, it also needs the financial resources to help fuel that growth. This is where loans may come into play.
 
To understand how loans may help entrepreneurs, let us explore the concept of good debt.

Debunking debt myths

You may have heard that "utang" or debts are bad. But in the world of business, debt may actually be used to help scale and grow your business.

Two types of debt

There are two types of debt - the good debt and the bad debt.

Bad debt is the kind that may sink your ship. It is when you borrow money to buy things that lose their value over time like clothes, shoes, or gadgets.

On the other hand, good debt helps enable you to generate income. An example of this is when you borrow money for business needs with the intention to make more money.1

Turning debt into prosperity

Now, let us explore how good debt may help boost your business. Imagine this: you are an entrepreneur with a big dream, but limited resources. After a few years of hard work, you are ready to expand your business. Fortunately, banks like BDO are ready to support small entrepreneurs like you.

With the loan you secure, the possibilities are wide open. You may increase your product inventory, broaden your network, and establish marketing and sales channels that propel your business forward. This smart use of borrowed funds does not just keep your business running. It helps it thrive, even in challenging times.

Good debt, when used wisely, may be a powerful tool for growth. The key is to stick to your repayment plan and hold yourself accountable in managing your finances.1

Exploring SME Loan

Now that you have an understanding of the benefits of debt, you might be wondering how you can get necessary funds to take your business to the next level. This is where SME Loan, like those offered by BDO, may help. These loans are designed to meet the specific needs of small and medium-sized enterprises (SMEs).

Here is a brief overview of the types of loan facility that are available under BDO SME Loan:

Term Loan - This type of loan provides funding for long-term business investments, such as business expansion, or construction. It works for the purchase of new assets like machines and equipment, acquisition of real estate properties, and construction, repair, or renovation of business facilities.

SME Ready Check - A revolving credit line facility that gives you access to a pool of funds for short-term operational expenses. In a revolving credit line, you have the flexibility to borrow money, up to a set limit, while repaying installments.2

It is ideal for buying inventory or supplies, addressing seasonal or bulk orders, managing working capital, and paying suppliers while waiting for customer payments.

Loan terms and options for your business

When considering a business loan, it is important to understand the terms and options available. For example, since SME Loan is secured by real estate, you may borrow up to 70% of your property's value which may range from 1 million pesos to 50 million pesos. Loan terms also vary, with options ranging from one year to 10 years.

Balancing risk and opportunity

Taking on a loan comes with risks and challenges. But it also presents opportunities for growth and innovation. Just like other successful entrepreneurs, you may leverage these funds to help expand your business, build connections, and establish a network, ultimately positioning your business for success.

Visit BDO's website for more information.

References:
1. BDO Unibank. SME Loan Entrep Talks: The Good Debt Series Episode 3.
2. Investopedia. What Is Revolving Credit? What It Is, How It Works, and Examples.

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