We've repeatedly discussed how debt isn't necessarily a bad thing, although we're aware that it's human nature to not want to end up in a money pit.
And even entrepreneurs who are willing to take on debt tend to want to pay it off as soon as possible for fear the debt service will hang over their business like an omnipresent black cloud.
That's why they seek short amortization periods, often a year or less.
Yet that may be a mistake.
Sure, it's good to not be saddled with excessive debt payments - and if you can eliminate your debt in advance, more power to you - but devoting too much time to debt reduction can be counterproductive.
Many businesses are cyclical in nature, and even those that aren't have slow periods on occasion. At those times, a long amortization period (and the resulting lower payments) can make your day-to-day business a lot more comfortable and leave you not having to worry about lulls.
Long-term loans - with typical payback terms of three to 10 years - often are better for more expensive or longer-term purchases.
It may be prudent to obtain a short-term loan to stock inventory before a busy period, make small equipment purchases or to handle emergency repairs.
But long-term loans should be considered for things such as major equipment buys, real estate purchases or acquiring another business. Do note that these loans are sometimes difficult to obtain, particularly for newer businesses that have shaky finances and/or lack a long track record.
But there are other reasons why a longer amortization period makes sense.
For example, there's a strong possibility that you may hold other, high-interest short-term loans. Having a longer amortization period frees up cash flow that you can use to pay down the high interest debt - or be used for other pressing needs.
In the same vein, you might be able to better use the money saved for investments that will make you more cash.
And while it hasn't been a big issue of late, if inflation is expected to rise long-term, you'll want to borrow money at the lower rates because you'll be paying it back with dollars that are somewhat devalued.
Another issue with short-term loans is that they don't always stay that way. If cash flow runs tight and you can't make the payment, you might need to get another loan to make the first payment - a classic debt trap.
Short-term and long-term debts have their places in operating a business. By knowing when to best use both of them, your odds of continued success will climb.