If debt is morally neutral, then why do people make it sound so shameful?

The problem with debt isn’t an inherently moral issue. It is, as many business issues are, a cash flow issue.

Sure, it can affect your credit score, or it can cause you stress, but that is not about your worth. It is not a moral issue, but a financial one.

We think that everything should be bootstrapping* their businesses. That’s the sense I get from reading articles about entrepreneurship anyway. There is glory in bootstrapping, or so we think.

Meanwhile, as of 2022 around 72% of businesses in the US carry some amount of debt.

Soooooo…most. Most small to mid-sized businesses carry debt.

Additionally, about 17% of small to mid sized businesses in the US hold debt that is over six-figures. So almost a fifth of small to mid-sized businesses manage a six-figure debt.

And still, we treat it as a failing to have it, to owe it, to need it.

If debt is morally neutral then why talk about it at all?

Debt is neither good nor bad. It is money that is sometimes needed by your business to make advances, to cover a dip in sales, to cover payroll, to expand, or to make big moves. Some of you might need it or want it, some of you might not. Statistically speaking, most of you will use it at some point.

We talk about debt not to bring shame, but to bring a sense of management to it. Debt being out of control is only a problem in that it impacts your business cash flow, creates stress, and eats into your ability to pay for other goods and services in your business.

But the way it is often framed in popular culture, we think of it as a character flaw, or a mismanagement of funds.

It isn’t though.

Debt is not a character flaw

Think of it this way – let’s say that you have payroll and you want to ensure that payroll is covered every month. Having a Line of Credit with your bank in case of a cash flow hiccup, is very good planning on the part of a business owner.

It means your workers get paid. In this case, drawing on your Line of Credit is helpful, the debt you owe is morally neutral – a necessary and vital part of having a functioning business that keeps the doors open and your staff happy.

When working with clients, we work together to keep shame out of the conversation because it is seriously unproductive. Reframing it as a neutral system that needs management and care and planning makes for a more productive conversation and process.

Having debt that is too much of a burden means not being able to operate your business how you want to because large payments disrupt your cash flow. Having debt that is intentionally managed can relieve you of that stress.

When it comes to the question of whether or not to borrow money for your business, there is no right or wrong answer – each business owner will have a different take, different needs and a different system.

When does debt become a problem?

If large monthly payments are making it hard for you to spend money elsewhere in your business, then let’s address your debt. If the payments are causing you stress, then let’s address it. Shame makes it harder to face what needs to be done, so let’s set it aside to work on a strategy and a structure.

Borrowing money with intention, taking out a micro loan for instance, can help you focus on your goals and be very judicious about your spending.

If you are thinking about borrowing money, start by making a list of everything you think you’ll want to spend it on: equipment, expansion, short term to order materials for an order that you know will get paid, and more. Be intentional about it and don’t deviate from your list.

You can also plug those monthly payments into a cash flow projection and see how much cash you’ll need on hand each month to pay it back. and again, don’t deviate too far from your plan to pay it back.

Let’s reduce shame around debt

We have shame for needing the money, so we panic and just put it on a card, so we get higher debt which makes managing it harder. Not because of morality, because the debt was more than what we needed, or more than what was manageable.

Pause and take a deep breath. Now imagine borrowing money with a clear plan. You look forward and see that in two months you’ll need materials, you are having a slow sales month because it’s March and that’s a slow season for everything except pre-ordered wedding rings. You have a choice to make, and it isn’t a moral choice, it’s a math choice: Will you have the money on hand when you need to?

What if you just don’t want to borrow money?

You also don’t necessarily HAVE to borrow money to plug up a hole in your business money. Maybe your cash flow projection needs a tweak, or your sales strategy. This can be part of the management process too. Looking ahead to what sales will come in, looking ahead to which bills will be going out, what materials need to be ordered and more can help you to not borrow money. This is a plan for anyone who feels stress at the thought of taking on debt.

*The roots of the term “bootstrapping” originated as a social commentary on an impossible task. Originally, it was meant sarcastically – to pull yourself up by your bootstraps meant that you were attempting to lift yourself off of the ground by some straps attached to your boots. A physics thought exercise to demonstrate the limits of movement. Now we use it to suggest that we should all be able to access the same resources. So when you hear the term bootstrapping, remember that originally it wasn’t meant to be business advice.

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