What is debt management?

Debt management is the strategic approach to borrowing, servicing, and repaying business debt. It involves selecting appropriate debt instruments, maintaining healthy debt ratios, meeting payment obligations, complying with covenants, and planning for refinancing or repayment. Effective debt management balances growth financing against financial risk.

Good debt vs bad debt

Debt-financed assets that generate returns exceeding interest costs are productive. Debt funding operating losses or lifestyle expenses is destructive. A loan to hire revenue-generating staff can accelerate growth. A line of credit covering payroll because clients pay slowly might indicate pricing or collection problems. Evaluate what the debt actually funds.

Warning signs of debt trouble

Borrowing to make debt payments signals distress. Rising debt with flat revenue suggests cash flow problems. Approaching credit limits with no paydown plan creates vulnerability. Covenant violations restrict future flexibility. If any of these appear, address the underlying causes immediately rather than seeking more credit to mask symptoms.