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What Is a Good Debt-to-Asset Ratio?


Being a business owner comes with a variety of unique challenges. As your business starts to grow, you will need to find a way to acquire new equipment and expand. Unless you have a large amount of cash sitting around to make these purchases with, you will have to use the power of debt.

While taking out loans for this equipment can be beneficial, you need to make sure your business debt doesn’t get out of control. The best way to get a feel for how well your company is doing in regards to the debt you have is by figuring your debt-to-asset ratio. In short, this ratio allows a business owner to see how many assets they have in their possession have debts attached to them.

Most experts agree that a good debt-to-asset ratio is around 40 percent or below. Anything higher than that means you are nearly underwater in debt and need to find a way to dig out.

The following are some of the things you need to consider when trying to manage the debt your small business has.

Find Ways to Free Up Money to Invest in Paying Off Debt

If you run the numbers and your debt-to-asset ratio is just too high, your main objective needs to be tightening the purse strings and paying down the outstanding debts you have. Some business owners fail to realize that properly balancing a debt-to-asset ratio is an essential part of developing a successful and prosperous company. Finding ways to save a few dollars on monthly expenses and using these savings to pay down debts is vital.

One of the first things you need to consider when trying to save money is whether or not you are getting the best possible utility rate. Many business owners fail to realize there are a number of power companies on the market that compete with each other. Using this need to compete to your advantage can help you save money over time. Be sure to visit to find out more about the electricity plans if you are from around that area.

Are You Getting the Best Loan Interest Rate?

Did you realize over 43 percent of the businesses in America applied for a loan last year? While there is nothing wrong with taking out a loan, you need to be smart about it. Instead of just thinking you have received the best possible interest rate and repayment terms, you need to check these facts annually. The last thing you want to do is pay too much for the loan you need due to a lack of research.

If you do find a lower interest rate, you will be able to save money and pay more on the principle of the loan in question. Taking the time to contact business loan providers in your area is essential when trying to get the best possible deal. The time and effort you put into this process will be worth it due to the money it can save you.


There is Nothing Wrong With Waiting and Saving

In a world where credit is so readily available to small business owners, many entrepreneurs have forgotten about the rewards that come with saving and paying for upgrades, equipment or expansion with their own money. Being too impatient can lead to a business owner getting in over their heads financially. Instead of putting yourself in a financially compromised position due to your need to grow and expand, you need to take a step back and think about what is best for your business long-term.

If you want to expand into a new market, the planning process for this move will need to be extensive. Rushing into the expansion process will usually lead to mistakes being made that can derail your company’s progress. Getting on a strict budget and saving money can help you save money. Using this money to fund new services or products is a great way to avoid debt. If you leave debt out of the equation, you will be able to reap all of the financial rewards that come with a successful expansion.

Getting on the Right Track

Being under a mountain of business debt can be stressful, to say the least. This is why finding a way to lower your debt-to-asset ratio is something you should view as a priority.



Author bio:

Wendy Dessler is a super-connector who helps businesses find their audience online through outreach, partnerships, and networking. She frequently writes about the latest advancements in digital marketing and focuses her efforts on developing customized blogger outreach plans depending on the industry and competition.