Do You Understand Financial Leverage?


It’s not a new concept, but it certainly is an effective one. So what exactly is leverage and how can your business use leveraging to multiply its revenue?

According to The Street, financial leverage is “using borrowed money to increase a company’s return on investment.” Even though it can have some potential risks (risks that can be totally avoided with close attention to detail), the benefits such as quick access to endless capital and the open opportunity to expand and grow your business is definitely worth it.

The formula is simple: leverage is equivalent to the ratio of a company’s total debt to its shareholder’s equity.

A Scenario: How it Works

A small retailer wants to expand into the space next door in a strip mall. In addition to the increased rent, the business will need to buy fixtures, shelves, tables, and other retailing areas, as well as additional inventory. Most small businesses don't have cash lying around to spend, so the business will need to get a business loan. This loan is leverage, to help the business do what it couldn't do without the loan.  -Jean Murray; The Balance Small Business- How Leverage Can Benefit Your Business

In essence, this is exactly what we do here at Owl. We want to provide the leverage you need to grow your business providing your business working capital.

businessfinance, leverage, financialleverage