what problems could a business have by going in debt?

Answer 1

Some amount of debt is a good thing, because it is indicative that the business is making attempts to grow. Debt only becomes a problem when it becomes so large that a business has difficulty making its payments on a month to month basis. There are many ways of measuring how much debt a business has and how capable it is of meeting is payment obligations, such as an interest coverage ratio.

Answer 2

Debt increases the financial risk of a company as it requires additional payments to creditors. Also when going into debt a company will make certain agreements called covenants. Covenants can require a company to keep a certain amount of cash on hand, forbid from making certain kinds of investments or business expansions, and may even allow the creditors to come in and take over the company under certain conditions. Thus in addition to the fiscal risk of making constant payments, there are additional risks and limitations.

Answer 3

On top of what has been mentioned, too much debt also worsens a company's credit rating by agencies such as Standard & Poor's or Moody's.

If the company has such credit ratings worse than usual, issueing bonds for additional funds will cost more to the company as the coupon rates will need to be higher to compensate bond holders for "lending" their money to the "riskier" company. Interest rates for subsequent debt also face the same effects.

Answer 4

Being unable to pay bills

Having to go into bankruptcy

Ruining reputation with clientelle

Ruining personal credit of principle business partners depending on the kind of business set-up you have.

Answer 5

All kinds of problems ranging from A-Z