Why Consumer Debt is the Biggest Threat to Your Business

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If you’re a business owner then you likely feel besieged at all times, from all sides, by threats to the organization you’ve crafted and cared for. None of these threats should be discounted, yet some of these threats are more dangerous than others. It’s natural to feel your direct competition, or changing technology, is the biggest threat to your business. But ultimately the biggest threat to your business is consumer debt.

Consumer debt threatens your business in a variety of ways. From a “big picture” viewpoint consumer debt threatens your business because it threatens the larger economy which you operate within. High levels of consumer debt lead to unstable economic conditions, which lead to conservative policies within banks, the same banks whose loans you rely on to expand your business.

Taking the scale of the discussion down a notch, consumer debt is also dangerous to your business because large-scale consumer debt can reduce consumer purchases of goods and services, including your own. After consumers reach a certain level of debt they simply stop buying non-essentials, and this is especially true during hard economic times where lots of people are either out of work or have had to take on pay cuts.

But on a more 1-to-1 level, consumer debt is an incredible threat to your business if you allow your consumers to open up lines of credit with your company. It might sound like a good idea to open up lines of credit with your customers, doing so provides you with both the initial sale and the miracle of compound interest, but what happens when your customers stop paying that debt? What happens when they default on the debt they accrued with your organization?