Debt—it’s a word that can make business owners uneasy. But when used correctly, it can be one of the most powerful tools to grow your business. On a recent episode of the "Profit Tool Belt" podcast, Leo Kanell, an expert in business financing and founder of 7 Figures Funding, shared his experience and wisdom on how to use debt intelligently to grow a company.

Why Debt Isn’t Always Bad

A lot of business owners shy away from debt, and understandably so. The idea of owing money to someone can feel risky, even uncomfortable. But Leo reminds us that debt can be a calculated risk if used the right way.

"The real answer," Leo says, "is that it doesn’t always make sense to use debt. And if it doesn’t make sense, stay away from it until it does."

This is where strategy comes in. Leo emphasizes two critical points when deciding to use debt:

1. Proof of Concept – Before taking out a loan, make sure you know where the money is going and that it’s for something proven to work. Whether it's expanding a marketing campaign that’s already bringing results or purchasing equipment for a job you’re confident will pay off, always start small and scale once you've validated the concept.
2. Know Your Numbers – Understanding the return on investment (ROI) is key. If you’re borrowing to buy equipment or scale operations, you should know how this decision will generate more revenue or increase efficiency. Leo gives the example of contractors purchasing equipment that will help them complete jobs faster, increasing cash flow in the long run. If the numbers don’t add up, think twice.

When to Avoid Debt

While debt can be helpful, there are situations where it can lead to trouble. Leo advises staying away from loans or lines of credit when you don’t have clarity on where the funds will go or how they’ll be repaid.

For example, starting a brand-new marketing campaign with borrowed money is risky if you haven’t tested it in smaller amounts. "Start small with $5,000, not $100,000," Leo suggests. Make sure there’s a return before scaling up with financing.

Additionally, if you’re financing non-essentials or "wants" instead of "needs," it’s a red flag. As Leo points out, "Wants create needs, but wants should not come before needs."

The Right Way to Use Debt

Leo offers practical advice on when debt makes sense. One example is purchasing equipment that will help your business grow, like buying a skid steer for a construction business or financing software that improves operations. By ensuring the investment increases efficiency and cash flow, you’re making a calculated, smart decision.

Lines of credit and business credit cards are great tools for flexibility. You don’t have to use the whole amount, but having access to funds when you need them allows you to scale wisely. Leo stresses using small amounts of debt initially and repaying them quickly to establish trust with lenders and build a relationship.

Common Pitfalls to Avoid

Leo highlights some common mistakes business owners make, such as misunderstanding loan terms, especially balloon payments. With balloon payments, you're making smaller monthly payments, but the entire loan is due at the end of the term. If you aren’t prepared for that final lump sum or refinancing, it can put your business in jeopardy.

He also mentions hidden fees, such as origination fees, that can add up quickly. Always read the fine print and ask questions before signing.

Building Relationships with Lenders

One of the most valuable takeaways from Leo’s insights is the importance of relationships with lenders. He shares the example of Phil Knight, the founder of Nike, who built relationships with banks across several states, giving him access to the financing he needed as Nike grew.

Leo emphasizes that banks want to reduce their risk, so showing them you’re reliable by borrowing responsibly and paying down debt builds trust. Over time, this can increase your credit limit and open up more opportunities.

Debt isn’t something to fear if it’s used wisely. By proving your concept, knowing your numbers, and building strong relationships with lenders, you can leverage debt as a powerful tool for growth. As Leo says, entrepreneurs aren’t reckless risk-takers—they are calculated, careful decision-makers who make growth happen on their terms.

If you want to dive deeper into Leo’s approach to business financing, check out his book, The Business Funding Formula, available on Amazon.

Show Notes:

Episode Title: The Right Way to Use Debt to Grow with Leo Kanell

Host: Dominic Rubino

Guest: Leo Kanell, Founder of 7 Figures Funding and author of The Business Funding Formula

Summary: In this episode, Dominic Rubino chats with Leo Kanell about the smart way to use debt to grow a business. Leo, an expert in business financing, shares his journey from coaching youth football to helping business owners across the country access the funding they need to succeed. Together, they discuss when it makes sense to use debt, common pitfalls to avoid, and how to build strong relationships with lenders.

Key Takeaways:

• Debt isn’t always bad: Use it strategically when you have a proof of concept and understand the return on investment (ROI).
• Avoid loans for untested ideas: Don’t borrow for risky, unproven ventures. Start small and scale once you’ve tested and proven success.
• Know your numbers: Whether it's buying equipment or scaling a business, understanding your cash flow and profits is crucial before borrowing.
• Common mistakes: Watch out for balloon payments and hidden fees when borrowing money.
• Relationships matter: Building trust with lenders by borrowing responsibly can unlock more financial opportunities as your business grows.

‍
‍Where to Find Leo Kanell:

• The Business Funding Formula on Amazon
• LinkedIn: Leo Kanell
• Website: 7 Figures Funding

‍