“Debt financing can work for many businesses; however, debt financing can be very risky, especially if a new or existing business is already in financial trouble. Therefore, additional loans may not be the answer.
One type of debt financing that certain businesses seek is floor planning, which is a form of debt financing used by big retailers for big ticket items, such as cars boats, and other high end items. An example would be a car dealer; the car dealer would pay interest on the loan monthly and as the cars are sold the business would pay on the principle of the loan.
However, the danger of floor planning is the longer the item sits in inventory, the more interest the business must pay, and if items are not sold in a speedy matter the business could accumulate a large amount of debt.
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