Good Debt vs. Bad Debt
Debt Isn’t a Dirty Word: Reframing the Way We Think About Borrowing in Business
"We're taught that debt is bad. But is it always?"
That question alone is enough to make some people squirm. For many people, especially small business owners and freelancers, the word 'debt' feels like a red flag, a sign of failure, or something to be ashamed of. We’re taught to fear debt from a young age. We learn to view it as irresponsible, risky, and a sign that someone has mismanaged their finances. But here’s the thing:
Debt isn’t inherently bad. In fact, in business, it can be a strategic tool for growth.
As a CPA who works with socially conscious entrepreneurs, I’ve seen firsthand how damaging the cultural messaging around debt can be. Many business owners are stuck in personal finance mindsets that don’t translate well to entrepreneurship. And when they carry shame around debt, they often miss opportunities that could have taken their business to the next level.
Let’s talk about it.
Where the Fear of Debt Comes From
Most of us grow up with some version of the following message: Debt = bad. Savings = good.
Personal finance experts love blanket rules like "avoid debt at all costs," and while that might work when we're talking about high-interest credit cards or payday loans, it’s a lot more complicated when we shift into the world of business.
This fear of debt is deeply rooted in shame and judgement. We're taught that if we carry debt, it's because we made a mistake. That we're irresponsible, financially illiterate, or just bad with money. It becomes personal.
And let’s be honest - a lot of that messaging disproportionately impacts women and marginalized folks, who are already more likely to be excluded from traditional financial education and lending systems.
So, when you start a business and find yourself needing to borrow money to buy equipment, pay a contractor, or fund a marketing campaign, what do you do? It can feel like you’re doing something wrong.
You’re not.
You’re doing something smart. Or at least you can be, if it’s done intentionally.
Bad Debt vs. Good Debt
Let’s break this down, because not all debt is created equal.
Bad Debt:
This is the type of debt most of us are warned about - and for good reason.
Bad debt usually:
Comes with high interest rates
Is tied to depreciating assets
Doesn’t generate income
Limits your financial flexibility
Examples:
Maxing out a high-interest credit card to buy personal items
Taking out a payday loan
Financing a vacation or big-screen TV on credit
Bad debt often snowballs quickly. The interest compounds. It eats away at your cash flow. It gives you nothing in return.
Good Debt:
This is debt that supports your goals, helps you grow, and pays for itself over time. It’s calculated. It’s strategic. It’s not about survival; it’s about scaling.
Examples:
A student loan that unlocks career opportunities (when taken with intention)
A mortgage that builds equity
A business loan to fund inventory that you know will sell
A line of credit that helps you invest in new tools, hire help, or take on bigger projects
Good debt often comes with lower interest rates, can be tax-deductible (more on that later), and - if used well - can increase your revenue.
Business vs. Personal Debt: What’s the Difference?
Here’s where things start to diverge. In personal finance, debt is usually framed as a burden. But in business? It’s often just part of the plan.
Businesses use debt as a lever. It enables them to take calculated risks, invest in growth, and bridge temporary cash flow gaps. And guess what? Interest on business debt is usually tax-deductible.
That means if your business takes out a loan or uses a line of credit, the interest you pay can often be written off as a business expense. This can reduce your taxable income and lower your overall tax bill.
This is a big deal. It means borrowing doesn’t just help you grow - it can also help you save. However, many small business owners are unaware that this is an option, as no one has ever informed them.
Additionally, accessing credit for business purposes is often necessary. It doesn’t mean you’re struggling. It means you’re planning for sustainability, seasonality, opportunity, and resilience.
Why the Personal Finance Mindset Doesn’t Work in Business
One of the most significant mindset shifts that needs to happen when you move from employee to entrepreneur is this:
Your business finances are not the same as your personal finances.
And yet, so many business owners continue to treat them the same. They avoid credit. They rely solely on personal savings. They under-invest in their growth out of fear. And often, it’s because they’ve only been taught personal finance rules, not business strategy.
That gap hurts people. It keeps businesses small. It reinforces systemic inequities.
Financial literacy isn’t equitably distributed in our society. Those with access to generational wealth, financial advisors, and education often get a head start. The rest? They’re left to piece it together.
So let me be clear: if you’re running a business and you’ve never been taught how to leverage debt? That’s not your fault. But let’s change that.
How to Use Debt Strategically in Your Business
Debt becomes dangerous when it’s unplanned. But when it’s approached with intention, it can be one of the smartest moves you make.
Here are a few tips to use debt wisely:
1. Know Your Numbers
Before borrowing, make sure you understand your cash flow, profit margins, and expected return on investment (ROI).
Ask yourself:
What am I borrowing for?
How much will it cost me in interest?
How will this investment generate revenue?
2. Use Debt for Revenue-Generating Activities
Avoid borrowing to survive. Instead, use debt to fund activities that have a clear path to increased income. Think:
Hiring help to take on more clients
Buying equipment that increases your output
Marketing that brings in qualified leads
Developing a digital product with recurring revenue
3. Separate Business and Personal Finances
This one’s big. Use a business bank account. Get a business credit card. Keep your expenses separate. Not only does this make bookkeeping easier, but it also protects you legally and helps you access business-specific financial tools.
4. Work With a Professional
Find a CPA or bookkeeper who understands your values, your goals, and your business model. They can help you decide when borrowing makes sense, how much is reasonable, and what the tax implications are.
And make sure they lead with compassion - because shame has no place in financial decision-making.
When Debt Is the Right Move
Sometimes, borrowing money is the only way to make a big leap in your business. And that’s okay.
Maybe you need to launch a new product line. Or expand to a second location. Or cover payroll while you wait for a big invoice to be paid. These aren’t signs of failure. They’re signs of growth.
Debt can offer:
Flexibility
Leverage
Breathing room
Momentum
And sometimes, it’s what helps you move from surviving to thriving.
The Systemic Side of It All
Let’s not pretend this is just about personal choices.
Access to debt - especially good debt - isn’t distributed equally. Marginalized entrepreneurs, including BIPOC, disabled, queer, and neurodivergent folks, often face higher barriers to accessing affordable credit. Predatory lending and systemic discrimination still exist.
That’s why it’s so important to:
Advocate for equitable lending practices
Support community-based funding options
Share financial literacy resources with others
Everyone deserves the opportunity to build a thriving business, not just those with the right connections or credit score.
Final Thoughts: Reframing Debt
Debt isn’t a dirty word.
It’s a tool. Like any tool, it can be used well or misused. However, when you understand it, plan for it, and use it strategically, debt can help you build something truly remarkable.
Let’s stop teaching entrepreneurs to be afraid of borrowing. Let’s stop equating debt with failure. Let’s stop shaming people for doing what they need to do to survive and grow.
Instead, let’s focus on:
Access
Education
Strategy
Support
When we shift the narrative around debt, we empower more people to make bold, informed, and unapologetic financial decisions.
And that’s something I can get behind.
If you’re a socially conscious business owner in Canada looking for guidance on how to use debt wisely, I’d love to support you. Reach out HERE!
Business finances don’t have to be overwhelming or isolating. My FREE Financial Health Check helps you understand where your business stands and includes tailored resources so that you can make strategic decisions with confidence and clarity.