Good Debt Trumps Bad Debt Every Time
Do you know the difference between good debt and bad debt? Once more, are you an entrepreneur who knows the difference between good and bad debt?
I am glad you are reading this article because we are going to learn how to get on the right side of the debt equation. Many of you are entrepreneurs who started the old fashion way, you were structured as sole proprietors. If you are still structured as a sole proprietor you are on the wrong side of debt or what is called bad debt. On the other hand, if you are incorporated you are on the right side of debt.
I will explain the difference because I know we can mutually agree being on the right side of debt means we have good debt. For example, you might be in the leasing business and you just won a contract for $10 million dollars but the only problem is you have to start the project before the funds are distributed to you.
If you are a sole proprietor you typically would not have several million dollars sitting around at your disposal because you have to move money around in order to make more money. You go to the bank and are told they will not extend the funds to you because it goes against your personal credit because its in the red.
On the other hand, using the same scenario, your company is incorporated and you won a contract for $10 million. You go to the bank and apply for a line of credit under the business name and they extend $1 million so you can begin your project.
If you are structured as a sole proprietor you are exposing your business and personal assets. If you are incorporated you are not exposed and you build greater liquidity because of your structure. The business that is incorporated can make transactions resulting in good debt, the sole proprietor creates bad debt because he increases his risk to the market and to his family.
Being on the right side of debt means you have taken steps to negate risk which equates to good debt. Being on the wrong side of debt means you increase your risk and will pay higher rates for the same amount of money. Schedule a meeting with an attorney and accountant in your local area and go for the good debt, it costs less in the long run and decrease risk to your business and family.
Paul Lawrence Vann is one of America’s most dynamic wealth building experts having managed billions of dollars for the U.S. government and a Fortune 500 company. He is CEO of the Wealth Building Academy and is financially independent having invested in real estate and other investments. Paul is host of the Wealthy Speaker Radio Show and interviews wealth building experts to help his audience learn financial literacy and how to become rich, visit his site at http://www.blogtalkradio.com/paullawrencevann
http://www.paullawrencevann.com - (800) 476-8976.
Add comment December 6th, 2007
