Ways to leverage debt to grow your business

July 8, 2025 | 4 minute read

Key takeaways:

  • Using debt strategically can fuel the growth of your business and return on equity.
  • Matching short-term obligations with short-term lines of credit and longer-term purchases, such as real estate and equipment, with longer-term loans is a strong financial practice.
  • Before approaching lenders, make sure your financial reporting is sound.

When starting a business, many owners are not fully aware of the powerful role that financing can play in building their company’s success. They want to quickly pay back the loans from family, friends and other investors as they build a sustainable operation.

 

Paying down the debt that helped launch the company is often a cause for celebration. Yet while becoming debt-free is an important milestone, deploying debt selectively can provide the funds to accelerate the growth of your business.

 

“Using debt as a strategic tool to achieve business goals can be incredibly powerful,” says Robert Lochman, Bank of America senior vice president and product manager. “Proper use of debt, also known as leverage, can open growth opportunities and maximize shareholder returns.”

The upside of debt for a business

Starting a company entails an upfront investment to set up the business model and generate revenue. Once you’ve reached that point, avoiding credit or debt financing seems practical — why sustain the risk and expense if you don’t have to?

 

But that short-term view can hamper your company’s growth over the long term. Taking out a line of credit or commercial loan can allow you to:

 

  • Increase liquidity. An operating line of credit can help support your cash needs while you’re waiting on customer payments. “Using debt to support inventory and accounts receivable is often more efficient than tapping into your own cash,” Lochman says.
  • Potentially decrease tax obligations. The interest you pay on a line of credit or commercial loan is generally tax deductible if used for business purposes — it’s considered a business expense on your company’s tax return. (See “Maximize the benefits of the interest tax shield,” below.)
  • Match asset duration to liability duration. Short-term assets, such as inventory, are best paired with short-term debt like a line of credit. Long-term assets, such as real estate or equipment, could be funded with long-term debt like commercial real estate loans or equipment financing. “When companies can segment their needs and goals, they can be much more appealing to lenders,” Lochman says.
  • Own your place of business. Buying a property is often a goal of a growing midsize firm, and using credit is invaluable for real estate purchases. A commercial real estate loan can make land or property transactions possible. Owning a building or property protects against future lease increases or being forced out of your location. It also gives business owners options down the road as they build wealth through commercial real estate equity.
  • Cultivate new markets. As companies grow, finding ways to finance expansion into new markets or new products is often top of mind. Leveraging debt wisely can be a powerful tool to power your business to new successes.

 

For all types of financing, terms such as the interest rate and credit limit can vary based on your business credit profile. Your accountant or a Bank of America small business specialist can help you compare financing options.

 

Leveraging debt successfully can help a business owner as they start, grow, mature and transition a business. Learn more about how to access capital across the four stages of a business journey.

How to prepare your company for borrowing

1. Elevate your financial reporting.

Showing that your company has robust accounting controls is key to proving your company’s creditworthiness. “An unqualified audit from your accountant is the gold standard for annual financial reporting and will always reflect well on your accounting controls to the bank. However, reviewed statements and compiled statements can be sufficient for many small businesses,” says Vanessa Phelps, senior vice president and commercial credit product manager at Bank of America. Lenders will also want to see indicators of financial stability, such as solid cash flow and positive net income.

 

2. Highlight your success.

As you consider financing solutions, you’ll need to offer proof of concept for your business model. It will help to have a proven track record of success and be able to articulate your strategic plan for moving forward. Your business plans will help you determine the loan best suited to your needs. “We want to make sure you understand your business and the challenges you face in the competitive marketplace,” Phelps says.

 

3. Be strategic with your financing tools.

As companies consider financing, it’s essential to match the assets to the debt. Short-term assets, such as inventory, should be paired with short-term debt, such as a line of credit. Long-term assets, such as real estate or equipment, should be funded with long-term debt like commercial real estate loans or equipment financing.

 

4. Consult the experts.

Depending on your needs and growth goals, Phelps adds that bringing your existing banking partners, accountant and attorney to the table can be helpful. For instance, if you’re opening another location, your lender may want to meet with your treasury management expert to learn more about the cash flow implications. For businesses that have significant equipment needs, working with the leasing partner may also make sense.

Maximize the savings of the interest tax shield

  • The interest tax shield may lower taxable income by allowing businesses to deduct qualifying interest expenses from their federal income tax liability. Under current rules, businesses with average annual revenue below $31 million may deduct interest without limit. For larger companies, the deduction is limited to 30% of annual taxable income. That means the interest you’ve paid on the money you’ve borrowed to help your company grow may offset the amount you owe in federal income taxes.

Bank of America and its affiliates do not provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

Back to Homepage

Explore more

Ready to meet with a specialist?

Our specialists are ready with advice and guidance to help move your business forward.

Important Disclosures and Information

Bank of America, Merrill, their affiliates and advisors do not provide legal, tax or accounting advice. Consult your own legal and/or tax advisors before making any financial decisions. Any informational materials provided are for your discussion or review purposes only. The content on the Center for Business Empowerment (including, without limitations, third party and any Bank of America content) is provided “as is” and carries no express or implied warranties, or promise or guaranty of success. Bank of America does not warrant or guarantee the accuracy, reliability, completeness, usefulness, non-infringement of intellectual property rights, or quality of any content, regardless of who originates that content, and disclaims the same to the extent allowable by law. All third party trademarks, service marks, trade names and logos referenced in this material are the property of their respective owners. Bank of America does not deliver and is not responsible for the products, services or performance of any third party.

 

Not all materials on the Center for Business Empowerment will be available in Spanish.

 

Certain links may direct you away from Bank of America to unaffiliated sites. Bank of America has not been involved in the preparation of the content supplied at unaffiliated sites and does not guarantee or assume any responsibility for their content. When you visit these sites, you are agreeing to all of their terms of use, including their privacy and security policies.

 

Credit cards, credit lines and loans are subject to credit approval and creditworthiness. Some restrictions may apply.

 

Merrill Lynch, Pierce, Fenner & Smith Incorporated (also referred to as “MLPF&S" or “Merrill") makes available certain investment products sponsored, managed, distributed or provided by companies that are affiliates of Bank of America Corporation (“BofA Corp."). MLPF&S is a registered broker-dealer, registered investment adviser, Member SIPC, and a wholly owned subsidiary of BofA Corp.

 

Banking products are provided by Bank of America, N.A., and affiliated banks, Members FDIC, and wholly owned subsidiaries of BofA Corp.

 

“Bank of America” and “BofA Securities” are the marketing names used by the Global Banking and Global Markets division of Bank of America Corporation. Lending, derivatives, other commercial banking activities, and trading in certain financial instruments are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Trading in securities and financial instruments, and strategic advisory, and other investment banking activities, are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, BofA Securities, Inc., which is a registered broker-dealer and Member of SIPC, and, in other jurisdictions, by locally registered entities. BofA Securities, Inc. is a registered futures commission merchant with the CFTC and a member of the NFA.

 

Investment products:

Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value