Vinu: Manu, I’m confused about taking loans. When is debt actually a good decision for a business?

Manu: Debt is useful when it helps you earn more than it costs. If used correctly, it accelerates growth. If misused, it creates pressure.

Vinu: Can you give a simple example?

Manu: Sure.

If you take a loan of ₹20 lakh at 12% interest and generate returns of 18%, you’re creating value.

But if returns are only 10%, you’re losing money.

Manu: Exactly. Use debt only for productive purposes—like expanding capacity, buying machinery, or increasing inventory that drives sales.

Manu: For covering losses, paying old dues, or funding personal expenses. That’s a warning sign.

Vinu: What about working capital loans?

Manu: They’re fine if your cash cycle justifies it.

For example, if your receivables cycle is 60 days, short-term funding helps bridge the gap.

Vinu: How do I check if my business can handle debt?

Manu: Look at your cash flow.

If your monthly surplus is ₹3 lakh and EMI is ₹2.20 lakh, you have a cushion.

If EMI itself is ₹3 lakh, you’re under stress.

Manu: Keep debt at a level where repayment is comfortable even in slow months. Don’t plan assuming best-case scenarios.

Vinu: What’s the biggest mistake entrepreneurs make with loans?

Manu: Over-leveraging during growth phases without checking repayment capacity.

Vinu: One simple rule to remember?

Manu: Borrow to grow—not to survive.

Vinu: Final takeaway?

Manu: Debt is a tool. Used wisely, it builds your business faster. Used poorly, it can bring it down just as quickly.

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