Growing with Debt: The Pros, the Cons, and Alternatives for Small Businesses

Running a small business is a little like riding a roller coaster you designed yourself. You’re the one who decides when to climb, when to take a sharp turn, and when to hit the brakes. The problem is, most small business owners don’t have unlimited cash to keep the ride going smoothly. That’s where debt often enters the picture.

Banks, credit unions, and even private lenders are more than happy to extend financing to small construction companies, consulting firms, engineering shops, or other service-based businesses. The promise is tempting: “Borrow today, grow tomorrow.”

But as a fractional CFO who’s spent two decades in and around businesses like yours, I can tell you, debt isn’t always the rocket fuel it’s made out to be. Sometimes it’s a parachute, sometimes it’s an anchor, and sometimes it’s just plain dynamite in the wrong hands.

In this post, we’re going to dig into:

1. The upsides of using debt to grow – where it can actually help your business thrive.

2. The risks and hidden downsides – what lenders don’t emphasize in their glossy brochures.

3. More conservative approaches – ways to build and grow that don’t leave you lying awake at night wondering how you’ll cover next month’s payments.

4. How to find balance – practical steps you can take today to decide whether debt should be part of your strategy or a distraction from it.

This isn’t theory pulled from textbooks, it’s about real decisions small business owners in the US and Canada are facing every day. Let’s dive in.

The Case For Growing with Debt

1. Leverage that levels the playing field

If you’re running a $10 million construction company or a $5 million professional services firm, competing with bigger players can feel impossible. They have the equipment, the marketing, the staff, the systems, all funded by bigger balance sheets.

Debt can level the playing field by giving you access to capital that lets you:

• Buy equipment instead of renting, reducing long-term costs.

• Hire specialized staff that allow you to take on bigger projects.

• Expand into new markets or open that second office without draining your cash flow.

Think of it this way: without financing, growth often means waiting years to save up enough cash. With financing, you can close the gap much faster.

2. Smoothing out cash flow gaps

This one matters a lot in construction and professional services. You’re often stuck waiting for clients to pay 30, 60, even 90 days after you’ve already paid your people, suppliers, and subs. Debt, whether it’s a line of credit or short-term working capital loan, can act like a bridge between today’s expenses and tomorrow’s receivables.

Used responsibly, this keeps the lights on and payroll flowing without forcing you to chase clients too aggressively or discount invoices just to get paid early.

3. Taking advantage of opportunities

Sometimes opportunity knocks, but only for a few seconds. Maybe a competitor goes under and you can scoop up their client list. Maybe a supplier offers a bulk discount that saves you 20% if you buy today. Or maybe there’s a contract on the table that’s bigger than anything you’ve taken before.

Debt can make it possible to say “yes” to those opportunities instead of watching them pass by.

4. Tax advantages

In both Canada and the US, interest on business debt is usually tax-deductible. That doesn’t mean “free money,” but it does mean the real cost of debt may be lower than it looks at first glance. For example, if you’re paying 7% on a loan but your effective tax rate is 25%, the after-tax cost of that loan is closer to 5.25%.

This is not a reason to go wild with borrowing, but definitely something to factor into the calculation.

The Risks of Growing with Debt

Okay, so far debt looks pretty good. But here’s where I’m going to pump the brakes a little.

1. Fixed payments don’t care about your cash flow

In general, banks don’t care if your clients paid late. They don’t care if weather delayed your project by two months or if a global pandemic threw your industry sideways. If you owe $20,000 a month, you owe $20,000 a month, period.

For small businesses, where cash flow is already unpredictable, those fixed payments can feel like a noose tightening every time you hit a slow patch.

2. Over-leverage sneaks up on you

Leverage in this case, just means borrowing money, and usually your first loan feels manageable. The second loans? Still fine. Then suddenly you’re juggling three different payments, each with different terms and interest rates, and your debt-to-equity ratio looks more like a startup casino than a business.

This is especially dangerous in construction, where projects can balloon in cost or get delayed, leaving you carrying debt longer than you planned.

3. The emotional toll

This is something not enough people talk about. Carrying business debt isn’t just a financial issue, it’s an emotional one. I’ve seen owners lose sleep, snap at their teams, and even sabotage their own growth because they’re constantly worried about making payments.

Debt can quietly change how you make decisions. Instead of asking, “What’s best for the business long-term?” you start asking, “What keeps the bank off my back this month?” That shift can erode the very foundation of your company.

4. Interest rates and market conditions can turn fast

We’ve all watched interest rates rise over the last couple of years. If you took on variable-rate debt when rates were low, you might now be paying double what you expected. That’s not just bad luck, that’s risk you chose when you signed the papers.

And even if you have fixed-rate debt, tighter lending conditions can still hurt you. Banks pull back, lines of credit get frozen, and suddenly the safety net you thought you had isn’t there anymore.

More Conservative Approaches to Growth

If debt feels risky (and it often does), what are your alternatives? Some business owners prefer slower, steadier strategies that don’t tie them to a lender. Let’s look at a few.

1. Grow with retained earnings

The old-school approach: grow with the profits you’ve already earned. Instead of pulling out every dollar for personal use or reinvestment in unrelated areas, you deliberately keep cash in the business to fund future growth.

The upside:

• No interest payments.

• No debt obligations hanging over your head.

• You stay fully in control; no outside parties dictating your cash flow.

The downside is obvious: it takes longer. But here’s the thing, sometimes slower growth is actually safer growth. A company that grows steadily on its own cash may end up stronger in the long run than one that sprints forward on borrowed money.

2. Customer-Funded Growth

Not every business owner realizes this is an option. But your customers can sometimes be your best “bankers.”

Ways this shows up:

• Deposits or retainers before starting work.

• Progress billing that aligns cash inflows with expenses.

• Annual prepay discounts in professional services (get paid up front, deliver over time).

This approach shifts some of the financing burden off your shoulders and onto the natural flow of your contracts.

3. Joint Ventures or Partnerships

Instead of going into debt, you can share the risk (and rewards) with another business. For example, in construction, two companies might team up to bid on a bigger project than either could handle alone. In consulting, you might partner with a firm that has complementary expertise, splitting marketing and delivery costs.

This route protects your balance sheet while still allowing you to “think bigger” than your own resources.

4. Leasing Instead of Buying

Equipment-heavy businesses face a constant tug-of-war between buying outright and leasing. Buying with debt locks you into loan payments; leasing often spreads costs more flexibly and preserves capital.

While leasing isn’t free, it can be a more conservative way to scale operations without loading up the balance sheet with liabilities.

5. Build a War Chest Before Expansion

Sometimes the most disciplined move is to wait. Put growth plans on ice for six months to a year while you deliberately build a cash reserve. Then, when you move forward, whether it’s a new office, new hire, or new equipment, you’re doing it from a position of strength.

This not only avoids debt, but also gives you peace of mind knowing you have a cushion if things take longer or cost more than expected (and let’s be honest, they almost always do).

Finding the Right Balance

Here’s the truth: debt isn’t all good or all bad. It’s a tool. The real question is whether it fits your business, your appetite for risk, and your growth strategy.

Questions to Ask Yourself Before Taking On Debt

1. What’s the purpose? – Is this borrowing for growth (new opportunities, new revenue) or survival (covering payroll)? Debt for growth can make sense. Debt for survival usually just delays the inevitable.

2. What’s the ROI? – If I borrow $500,000, how much new profit will that realistically generate? How soon? What will it cost me over the same period of time?

3. Can I cover payments even if things go wrong? – Run the numbers assuming your next project gets delayed, or sales take 30% longer than expected. Can you still pay the bank?

4. What’s my exit plan? – Am I paying this down steadily, or just hoping future growth bails me out?

Balancing Debt with Equity

Equity (your own cash, retained profits, or outside investors) is slower, but safer. Debt is faster, but riskier. The healthiest businesses usually use a mix of both.

Think of it like a construction project: you wouldn’t build on just rebar or just concrete, you need both working together to create strength.

Practical Steps for Business Owners

Here are some simple, actionable steps to take before you sign any loan papers, or before you rule debt out completely.

Do a cash flow stress test

Take your current cash flow statement and model what happens if:

• Sales dip by 20% for three months.

• Customers pay 30 days later than usual.

• Costs on your next project come in 15% higher.

If debt payments still fit comfortably in that picture, you’re in safer territory. If not, proceed with caution.

Compare options beyond your bank

Banks aren’t your only choice. Credit unions, government-backed programs (like SBA loans in the US or BDC financing in Canada), and even vendor financing may give you better terms. Always compare.

Build a conservative payback plan

Even if the loan term is five years, design your business plan around paying it back in three. That gives you breathing room if things slow down, rather than living on the edge from day one.

Talk to a financial partner before signing

This doesn’t have to be a full-time CFO, you can work with a fractional CFO (like me), your accountant, or a trusted advisor. The point is: get a second set of eyes on the numbers. Too many owners take on debt based on gut instinct rather than clear analysis. The sad truth is many business owners and potential business owners needlessly feel they have to to go it alone and bear the decision making responsibility and get into trouble before they even get started.

Wrapping It Up

Debt can be a ladder, or a trap. It can help you grow faster, take on bigger opportunities, and smooth out the cash flow roller coaster. But it can also tie you to fixed payments, amplify your risks, and shift your focus from building the business to just feeding the bank.

The good news is you have choices. You can grow with retained earnings, customer deposits, partnerships, or by simply pacing yourself more deliberately. None of those strategies are as flashy as borrowing millions to scale overnight, but they often build a stronger, more resilient company.

Here’s the bottom line:

• Use debt only when the return is clear, the risks are covered, and the payoff timeline is realistic.

• Don’t let the bank’s willingness to lend define your willingness to borrow.

• Remember: the goal isn’t just growth, it’s profitable, sustainable growth.

What are your experiences with debt backed growth versus equity? Share your thoughts and experiences in the comments below.

A Fractional CFO’s Playbook for Scaling Without Losing Profitability

Growth isn’t always good

Let’s set the record straight, growth can hurt your business if you don’t handle it right.

Sounds backward, doesn’t it? We’re taught to think more sales equals more profit. Bigger jobs, bigger clients, and more locations are the are signs of success, right?

Not always.

Ask a business owner who scaled too fast; one who added staff, opened a second office, bought new equipment, or landed a big contract, and they might tell you that growth nearly broke them. Why?

Because scaling a business puts massive pressure on your cash flow, operations, team, and infrastructure. You need more people or new equipment before the revenue lands. You need to float costs on longer payment cycles. You need systems that don’t break when you go from five jobs to 15.

And if your financial fundamentals aren’t strong enough? Growth becomes a liability, not an asset.

As a fractional CFO, I’ve seen this firsthand. I have worked with construction and professional services firms across the U.S. and Canada that are full of potential but were bleeding profit and cash during periods of expansion. The answer isn't not to grow, it's to grow smarter.

This playbook outlines the four strategies I use to help business owners scale with confidence, control, and yes, profitability.

Strategy 1: Know your breakeven (and track it like a hawk)

One key metric to know, that is a foundation to planning for your business is your breakeven point; the level of revenue your business must generate to cover all its costs, before you turn a profit.

Why is this so crucial during a growth phase?

Because your costs are changing constantly.

Let’s say your current breakeven is $250,000/month. Then you:

• Hire a new project manager at $90K/year

• Lease an extra truck for $1,200/month

Now your breakeven is closer to $275,000/month, and if you don’t update that target, you’ll make decisions based on faulty assumptions. You’ll think you’re making money when you’re actually treading water (or worse).

What goes into breakeven?

Fixed costs: These don’t change with job volume and include things like:

• Office rent

• Admin and salaried wages

• Insurance

• Software subscriptions

• Equipment leases

Variable costs: These go up or down with the work and include:

• Subcontractor payments

• Direct labor

• Materials

• Fuel and logistics

Breakeven revenue = fixed costs ÷ gross profit margin

Let’s walk through a simplified example:

• Fixed monthly costs: $150,000

• Gross margin: 30%

Breakeven = $150,000 ÷ 0.30 = $500,000/month

That means your business has to earn at least $500K in revenue per month just to keep the lights on.

The scaling problem

Growth often means:

• Adding overhead (staff, space, tech, equipment)

• Accepting larger jobs with longer payment terms or higher upfront costs

• Carrying higher AR balances

All of this pushes your breakeven higher. If you’re not recalculating and adjusting your pricing, cash management, or pipeline goals, you could be flying blind.

Action steps:

• Build a dynamic breakeven calculator in Excel or Google Sheets.

• Update it every time you hire, buy equipment, or change your pricing.

• Tie it into your cash flow forecasting.

Real-world case:

I worked with a new specialty contractor whose management team were energetic and whose owner was “idea” guy. They started one company based on patented equipment and process and grew steadily for 4 years. Their customers were consistently asking for an ancillary service this company had been subcontracting, and they saw an opportunity. Over the next 12 months they acquired over $2M worth of new assets with loans from the bank or capital leases. Their incumbent CFO didn’t update the breakeven calculation, nor did they model and forecast the cashflow. After 18 months they found themselves with low utilization of these new assets, a negative cash flow that was bleeding up to $60K per week and they were very nearly maxed out on their credit line. They had not paid attention to how much additional revenue they needed to cover the cost of the new equipment (loans, fuel, repairs, operators, etc.) that it nearly destroyed the solid company they had methodically built.

Strategy 2: Invest wisely in capacity

Scaling doesn’t just happen, you have to build capacity to handle the extra volume. That means more people, more tools, better systems, or additional space.

But here’s the danger: many business owners “pre-load” too much capacity too early.

The overbuilding trap

In anticipation of growth, it’s tempting to:

• Hire ahead of demand

• Buy or lease trucks or heavy equipment

• Rent larger office or shop space

• Invest in complex software you’re not ready to use

The problem? Growth is rarely smooth. Jobs get delayed. Clients vanish. Payments take longer than expected. You’re left with fixed costs and underutilized assets.

Smart capacity planning

Here’s what I recommend to clients preparing to scale:

1. Use rolling 12-month forecasts

A rolling forecast is a financial projection that updates monthly and looks 12 months ahead. It models:

• Revenue based on booked + expected jobs

• Cash inflows and outflows

• Headcount actual and projected

• Equipment needs (fuel, R&M, operators, etc.)

You’ll see when you actually need to expand capacity rather than guessing.

2. Measure utilization

Before hiring, ask: Are we maximizing the team we already have?

Track:

• Billable hours vs total hours

• Crew downtime

• Equipment idle time

• Equipment downtime and repair costs

If you’re running at 60–70% capacity, fix the underutilization first. You don’t need more, just better scheduling or smarter job selection.

3. Stage your investment

Start small. Pilot. Rent before you buy. Use temp labor or subcontractors before locking in salaries.

Growth doesn’t need to be all-or-nothing and should be thoughtfully executed. Agile businesses grow in sprints, not leaps.

Strategy 3: Track customer acquisition cost (CAC)

Let me ask you something few business owners can answer confidently:

How much does it cost you to land a new client?

If you're unsure, you're not alone. Most construction and professional service firms either don’t know or wildly underestimate their customer acquisition cost. And that’s a problem, especially during a growth phase when marketing and sales efforts ramp up.

When your business is scaling, every dollar spent chasing leads needs to be tied to actual revenue and profit. Otherwise, you risk burning cash while thinking you're building momentum.

What Is CAC?

Your CAC is the total cost of bringing in a new customer. It includes:

• Marketing spend (ads, SEO, brochures)

• Sales team salaries or commissions

• Proposal writing or quoting time

• CRM software and automation tools

• Networking, trade shows, sponsorships

• Referral fees or discounts

Here’s a basic formula:

CAC = Total Sales & Marketing Costs ÷ Number of New Clients Acquired

Let’s say you spend $50,000 on marketing and sales in a quarter and land 20 new clients:

CAC = $50,000 ÷ 20 = $2,500 per client

Why CAC Matters

If a new client generates $8,000 in gross profit, a $2,500 CAC is great. But if you’re only clearing $2,500 per client, you’re breaking even at best.

CAC becomes even more critical as you grow, because:

• Sales cycles lengthen

• Lead quality can decline if you're scaling fast

• New segments or markets often come with higher CAC

• Your sales focus may diminish and it takes longer to land each new client

Compare CAC to CLV

A healthy business keeps CAC well below Customer Lifetime Value (CLV)—the total gross profit a client delivers over their lifetime. As a rule of thumb:

• CAC should be no more than 25–30% of CLV

• If it’s higher, you’re buying business instead of earning it

Track CAC by Channel

Not all marketing is created equal. Break CAC down by source:

• Google Ads

• Organic Search

• Referrals

• Social Media

• Networking or word-of-mouth

This helps you double down on what works and cut what doesn’t.

Real-World Example:

An industrial testing contractor I worked with had been pouring money into tradeshows throughout the United States, sending teams of people to each one costing thousands per show. They were convinced that with the comparative size of the US market this was where the growth was going to come from. Once we started measuring CAC and CLV they quickly realized that the few jobs they did land in the US were generating the lowest profit, while the organically grown referral-based work they were achieving in Canada was at much higher margin at a fraction of the acquisition cost.

They trimmed the ad budget by 80%, ramped up referral incentives, and saw better ROI almost immediately.

CFO Tip:

Even if you don’t have perfect tracking, start estimating CAC monthly. Use simple spreadsheets and refine over time. What gets measured gets managed and improved.

Strategy 4: Standardize operations or you will be scaling chaos

Here’s something most growing businesses learn the hard way:

You can’t scale chaos.

If your operations are inconsistent, undocumented, or overly dependent on a handful of key people, growth will only magnify the dysfunction. Mistakes multiply. Quality slips. Team stress increases. Clients feel it.

The solution? Standardize before you scale.

What to Standardize

1. Job costing

Use consistent codes, processes, and tools to track:

• Labor hours

• Subcontractors

• Materials

• Equipment usage

Tie this directly into your accounting system. Real-time job costing helps you price better, identify margin killers, and catch overruns early.

2. Project management

Don’t reinvent the wheel for every job. Create templates and checklists for:

• Project kickoffs

• Site meetings

• Change orders

• Closeouts and post-job reviews

Use integrated tools that facilitate collaboration, visibility and communication within your project teams.

3. Billing and collections

Set clear billing milestones. Automate invoicing reminders. Standardize your follow-up process for overdue accounts.

The faster and more predictably you bill and collect, the healthier your cash flow.

4. Hiring and onboarding

Every new team member should go through the same orientation:

• Safety protocols

• Tools and login setup

• Time tracking procedures

• Core values and client expectations

This keeps quality consistent and speeds up ramp-up time.

5. SOPs (Standard Operating Procedures)

Write down or record the way things are done. It doesn’t have to be fancy, Google Docs, PDFs, or Loom videos work just fine.

Every key function should be documented:

• How to bid a job

• How to submit an invoice

• How to handle a change order

• How to manage a client handoff

Real-World Example:

I worked with a wireless telecom contractor who experienced growth of 562% growth over an 18 month period. This type of growth would have destroyed most young organizations. However, they had a standardized their operational processes that allowed them to add new crews and contractors seamlessly, obtain project progress updates in real time which was integrated with the client billing requirements. So while tremendous effort was put into requiting technicians and subcontractors, the core business functions required to keep the cash flowing and quality of execution consistent scaled almost effortlessly. This ensured that cash inflows grew with the new expenditures at consistent and even improving profit margins.

Conclusion: Build a business that scales profitably, not just bigger

Let’s zoom out for a second.

Growth feels good. It’s exciting. It’s a sign that your product or service is resonating, your brand is gaining traction, and your market sees your value.

But growth alone doesn’t mean success, especially if it comes with:

• Flat or shrinking margins

• Payroll stress

• Client churn

• Team burnout

True success is profitable, sustainable growth. It’s about building something that lasts—and pays you for the risk you’ve taken.

Here’s a quick recap of the CFO Playbook:

Strategy 1: Know your breakeven

Your costs are always changing. Make sure your pricing and sales goals keep up.

Strategy 2: Invest wisely in capacity

Don’t overbuild. Grow in phases, based on demand, not hope.

Strategy 3: Track customer acquisition cost

Know what it really costs to land a client. Focus your resources on high-ROI channels.

Strategy 4: Standardize operations

Systems beat superheroes. Build a business that runs smoothly, even when you’re not around.

When you use these strategies, you move from reactive to proactive. You stop guessing and start leading with clarity, intention, and control.

What are your “must haves” for a successful growth strategy?  What did you learn from your growing pains? Leave a comment, share your thoughts or reach out if you’d like to have a further conversation.