It starts out innocently enough, usually with a small loan or a couple trade accounts, but by the time the bailiff puts a lock on the door, the amount of debt has become one of the nails in the failing business’ coffin. Here’s how easily it can happen.

Imagine that you’re starting a venture with limited funds and eager to get the doors open and succeed.

A startling number of new businesses fail in the first five years. Lenders know new business is risky, and manage their loan portfolios accordingly. However, with the right security, such as equity in the family residence or a willing co-signer or guarantor, it’s entirely feasible to nail down a start-up loan for a risk-laden small enterprise.

So, congratulations are in order; you’ve got the loan and started your business. Let’s say the borrowed funds pay for leasehold improvements and enough operating money to see you through the start-up period.

Life is good, but you still need supplies. In the early days of business, suppliers can be an uncooperative lot—nobody wants to extend credit until they develop a relationship with you. So, following “Supplier Development Rules Of The Road”, you proceed to build relationships and apply to establish a couple trade accounts with enough headroom to enable you to order a month’s supply, as long as you pay within 30 days.

Because the business isn’t yet churning out enough margin to provide you with a paycheque, you might find yourself nicking the corporate credit card to buy a few groceries. Every new business owner knows this is evil, but most do it anyway. After all, you’ve got to eat. You intend to pay the card to zero at the end of each month, but as you bang it up with personal knick knacks, and the money just isn’t there to pay it down, the carryover gets higher each month.

You discover that you need a couple more trade accounts and use your newly-honed skills to set up a few more accounts. In the meantime, your responses to pre-approved credit card marketing campaigns procure you a couple more credit cards.

With trade accounts and other random sources of debt like credit cards, the trap is that none of them know what the others are up to, they rely on your diligence and integrity, and also hedge their bets on their expertise at extracting payment from you like bad teeth, regardless of how you’re managing your other debts. So, by cherry picking and presenting a small part of your financial picture to the disparate players, it’s entirely possible for a clever operator to outsmart the entire bunch, including yourself, and tilt the financial chariot so far off centre that you wake up one day with no hope of ever getting your business back into the black, and no possibility of ever repaying the amount you owe.

All it takes from there is a small disaster to tilt the financial house of cards into pandemonium. Perhaps one morning as you’re about to head off to work, your aging vehicle coughs and refuses to take you anywhere. A flurry of repairs and a yelling match later, you owe a mechanic $900, and the corporate credit card takes yet another hit.

That’s how debt can destroy a business. Credit can be evil. Just because you can borrow, doesn’t mean you should. Treat debt with respect.