Is it a good time to borrow money?
Every once in a while, people approach me we a similar question and it roughly goes like this: Is this a good time to borrow money? And the answer always is: It depends!
And it doesn't really depend on the time or the economic situation. Even in these so-called unprecedented times there are lots of businesses that thrive or at least suffer way less than their competition because they were prepared and knew what to do. So, it's never about the situation of the market or the economy. It's all about your personal situation and what you need the money for.
It's a matter of perspective
Every economic situation can be good or bad. It is all a matter of perspective, how you deal with the situation and how well you are prepared to deal with it. There is no such thing as a bad market place. All there is are companies that weren't prepared for changing situations.
In general, all borrowing you do is bad if it is not for investment purposes. If you borrow money in order to pay some bills, then something went very wrong in your business or private life. You should never get into a situation where you have to rely on credit to finance your operating costs (or your lifestyle for that matter). Never ever! This is what I always would consider to be bad or foolish debt. In that category we are talking about loans for vacations, car loans or leasing, credits for the latest phone and so on.
On the other hand,
debt can be a great tool to fuel your investments and make a big profit with it. It's always the case when you are able to generate more return than you actually have to pay for the credit. And to be on the safe side the money you can earn should be way higher than the cost, ideally a multiple of it.
For example, if you are able to borrow money for let's say 5% interest rate and you can invest it into your business to generate a 30% return with it, then it's a great deal both for you as well as your creditor. You both earn money by creating more value in the market place. That is when credit can really fuel your business or the economy.
But make sure that first of all you are REALLY able to generate profits that are significantly higher than your credit cost. Don't just look at the cost and estimate you could make way more. Know exactly that you can and have a great plan to follow through with your investment.
To sum it up:
When you are able to invest other people’s money in a way that generates a profit that is way higher than the cost of borrowing that money, then credit can be an extremely powerful business booster for you. If you rely on credit to pay bills, operating expenses or your lifestyle, you are committing economic suicide.