Business debt consultants are warning that business debt is becoming an increasingly important issue for businesses, and that the debt that businesses now face is not just “the bad debt” they owe to their creditors but also the money that they have left over from their investment in future growth.
In an article published in this week’s issue of the financial magazine, Business Insider, Daniel J. Gorman and Daniel C. Leibowitz provide the following charts illustrating the growth of business debt and how it is impacting businesses.
They explain that while the majority of companies are now debt-free, the situation for a small percentage of businesses is more challenging.
The chart below is based on data from Credit Suisse, and shows how business debt in the United States has grown in the past three years.
The charts above, however, only provide a snapshot of the growth in business debt, not the total amount of business loan debt in a company.
So while there has been a significant rise in business loan and business debt over the past several years, it is important to note that many of the companies mentioned in the chart are not the biggest or most well-known, and some companies that are relatively small may not even be included in the larger data set.
Credit Suisse’s data includes businesses with a total debt of less than $1 billion, and excludes businesses with total debt that is more than $5 billion.
Gorman and Leibowsky also explain that the data also does not reflect the growth that business borrowers are experiencing as they go through the repayment cycle.
These borrowers are now spending much more of their income on debt payments and other expenses than they were prior to the recession, and they have increased their spending on debt.
As a result, their debt has increased.
While a decrease in debt has occurred in some instances, the majority, at least at the moment, has continued to rise.
Gomer and Leibiowitz then offer a simple explanation for the recent uptick in business borrowing.
The economy is improving, but there are still challenges.
“The economy is in a much better place than it was before the Great Recession,” they write.
“The financial sector is still suffering from the effects of the crisis, and it has been struggling to find new jobs that provide stable and predictable income.
But the economy is still growing faster than the government and the private sector, so businesses are more confident about the long-term future of their businesses.”
There is also more flexibility in terms of working with lenders, as they can borrow on longer-term projects, and so there are more people willing to take on debt for projects that are likely to pay off in the future.
“It’s clear that there are many more companies out there that are able to absorb the growth opportunities presented by the economy and the Federal Reserve’s efforts to support them, and to grow faster and better.”