Is there such a thing as good debt? I’ve never really liked that term, “good debt”.  I don’t think there is truly such a thing.  But I do think there is bad debt, and then less bad debt.  Two examples I can think of that could be listed in the “less bad debt” category are mortgages and student loans.  Both of those debts buy assets.  One tangible, a house, and one intangible, an education.

I wrote a post the other day about business credit.  I took a little heat for suggesting that we will take a loan to pay payroll if necessary.   (read that post here) This actually surprised me.  I know that a great deal of my readers are anti-debt but still, I wasn’t expecting that.   After all, I am buying an asset with my debt.  I’m buying an account receivable.

The comments against us using credit had two main points that I wanted to address.  One was that we should grow more slowly.  The problem is that we have an agreement with a national company to do the work in our area.  They have taken a chance on us and made us their first priority vendor.  They are our only customer.  It could be suicide to let our competitors back into the picture.  The second point was that we don’t know what our future sales will be.  This is true, but the payroll is based on past work, not future work.  Even if we close our doors the day after taking out the loan, we will still be able to pay off the loan when we get paid.   Yes, there is a risk of default.  But I feel this is a very very small risk.  This is a company we have experience with and know other people who have done work for this company and have been paid in a timely fashion.  Business is not without risk.  I truly believe that the risk/ reward ratio is well in our favor.

What if you a had family member that got laid off and is about to get their house foreclosed upon.  Lets say that they are willing to sell you the house for what they owe, which is half it’s market value.  Would you do it?   What if you had an agreement with someone to buy the house in 60 days for full market value?  Now would you do it?

That’s the situation that we are in.  Not only are we are also helping out family and friends who have been laid off by giving them a job, we also stand to make quite a bit of money.

So here is the question… Is there such a thing as good debt?  Is there ever a situation where it’s ok to take out a loan?  Or is all debt bad, no matter what the circumstances?

pic by: Kevin Dooley

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