Using a Line of Credit to Grow Your Business: How to Leverage Debt for Strategic Expansion
Tapping into your line of credit is one of the most important financial decisions you’ll make as a business owner, especially if you’re looking to grow. Many business owners hesitate to take on debt, preferring to save profits and reinvest them directly into their business over time. While it’s certainly conservative and risk-averse to grow without using debt, it’s also the slowest path to expansion. There’s a real opportunity cost to being overly cautious.
Here’s the bottom line: using a line of credit for business growth requires understanding how much it will cost and what it will allow you to purchase. In my case, I leveraged a $100,000 line of credit to buy 20 dumpsters.
From there, the key questions become: What’s my monthly interest payment? What’s my projected profit per dumpster? These numbers reveal the real cost and potential return on the loan.
Let’s break it down with real figures. If I can safely rent out those 20 dumpsters twice each month, and my average net profit per rental is $200, that’s 40 rentals per month. Multiply that by $200, and you get $8,000 in net profit per month. Now, let’s compare that to the loan’s cost. On a $100,000 line of credit, my monthly interest payment comes out to around $800. With these numbers, you can see the difference between smart debt usage and reckless borrowing. In this case, using debt to acquire those dumpsters has generated a substantial profit margin, making it a solid investment.
The next logical question is: How long will it take to pay back the loan with interest? If my projections hold, I’d be looking at about 14 months to fully repay the loan. After that, I’ve got $100,000 in assets that I didn’t need to pay for out of my own pocket. Now, of course, debt involves risk. If things go sideways, if rentals slow down, or if there’s an unforeseen downturn, you’re responsible for paying back that line of credit. However, if you know your business, have a track record, and make calculated decisions, this type of growth strategy can be very achievable.
The key here is knowing your numbers inside and out. You need to be disciplined, taking only what you need and ensuring that the projected profits comfortably exceed the cost of the loan. Once the loan is repaid, those assets are yours, and every month they continue to generate profit without any ongoing debt obligation.
In this example, after the line of credit is repaid, I would still be earning that $8,000 a month from those dumpsters. That’s $96,000 in annual profit from an investment made without spending a dime of my own money. The same approach works for other assets like trucks. Just ask yourself: What’s the annual earning potential of the truck? What’s the financing cost? Plug those numbers into this formula, and you’ll know whether it’s a wise move.
Using a line of credit for business growth can accelerate expansion in a way that cash-only investing simply can’t match. So, do your homework, know your numbers, and don’t be afraid to leverage debt smartly to scale your business.
1. Initial Loan
• Line of Credit Used: $100,000
• Assets Purchased: 20 dumpsters
2. Monthly Profit Calculation
• Average Rentals per Dumpster per Month: 2 rentals
• Total Rentals per Month (20 dumpsters x 2): 40 rentals
• Net Profit per Rental: $200
• Total Monthly Profit: $8,000
3. Monthly Loan Cost
• Monthly Interest on $100,000 Line of Credit: $800
4. Net Monthly Profit After Loan Payment
• Total Monthly Profit: $8,000
• Minus Monthly Interest Payment: $800
• Net Monthly Profit After Loan: $7,200
5. Loan Payoff Timeline
• Total Loan Amount: $100,000
• Monthly Profit After Loan Payment: $7,200
• Months to Pay Off Loan: After 14 months, the loan is fully paid off, and you own the dumpsters outright.
6. Annual Profit After Loan Repayment
• Monthly Profit (without loan payments): $8,000
• Annual Profit: So, after the loan is paid off, you’ll be generating $96,000 in annual profit from these assets with no further debt obligation.
Debt is often viewed with caution, but when wielded strategically, it can be a catalyst for growth and opportunity. Think of your line of credit not as a burden but as a bridge—a bridge that connects where your business stands today to where it could thrive tomorrow.
The question isn’t just whether you should use debt to grow, but rather, what opportunities are slipping by without it? In a world that rewards calculated risk, the choice to leverage your line of credit could be the decision that transforms your business from steady to unstoppable.✌️
Justin Hubbard
Whenever you're ready, here are three ways I can help you grow your business:
1. Get Personal Help with a FREE Strategy Call
Need fresh insights on your business strategy? Book a FREE 30-minute call with me. I help identify winning strategies to boost your bottom line and enhance your quality of life.
You’ve hired experts for your golf game and finances—now hire a coach to help your business thrive. As a fellow small business owner, I understand the challenges and know how to navigate them for growth and success. Book your strategy call HERE.
2. Adimize: Grow Your Business with Our Proven Google Ads System
Want to maximize your ad spend and drive results? Get a FREE Google Ads account review with adimize. Our team specializes in optimizing ad campaigns to drive leads and increase bookings. With over a decade of hauling industry marketing experience, we help your business grow using intent-driven, results-focused strategies. And with no contracts, there’s nothing to lose. Schedule your free review HERE.
3. Order My New eBook: Beyond Breaking Even | Unlocking Profit Potential In Hauling Businesses
Discover how to generate sustainable revenue and growth. This book provides targeted, efficient strategies specifically designed for the hauling industry. Inside, you'll find actionable insights on how to scale your business, optimize operations, and increase profitability while minimizing risk. Learn from real-world examples and proven methods that have helped businesses like yours go beyond survival to achieving success. Purchase your copy HERE
Comentários