Debt should buy appreciation, never depreciation

Debt isn’t good or bad. It’s a tool. Like any tool, it depends who’s holding it and why.

My simplest rule is this: debt should buy appreciation, never depreciation. If you borrow to fund something that creates durable cashflow or increases asset value, that’s educated leverage. If you borrow to patch a hole created by weak planning, you’re not financing growth, you’re financing anxiety.

The panic version usually looks the same. A business is busy, cash is tight, and nobody has a proper forward view. Then a tax bill arrives, a retention delay hits, or a client stretches payment terms. The founder goes to the bank, gets told “we need more time”, and then scrambles for capital at the worst possible moment. Expensive money isn’t the real problem there. Timing is.

Educated leverage starts earlier. It’s planned. It’s sized properly. It’s matched to the life of the asset or the cashflow it supports. It has covenant headroom and a repayment profile that doesn’t strangle the business the first time trading wobbles.

This is where the bank vs alternative capital conversation gets real. Banks are usually cheaper, but they’re painfully slower and more hugely risk averse when uncertainty shows up. 

Alternative capital is often faster and more flexible, but it needs respect. If you take fast money without a plan, you can finance yourself into a corner with repayments that leave no room to breathe.

Sometimes speed matters more than cheapness. If you’re acquiring, securing a key asset, or taking advantage of a time-sensitive opportunity, waiting six months for a perfect rate can cost you more than the rate difference ever will. The trick is knowing when you’re buying advantage, and when you’re buying time because you didn’t plan.

At Peak Capital, we like leverage when it’s educated. We don’t like it when it’s a sticking plaster. The difference shows up in cash forecasting,  discipline, and whether management can explain the “why” without getting defensive.