Debt Structure Matters More During Downturns Than Growth Periods
Strong markets can disguise weak financing. Difficult markets expose it.
During periods of growth, almost every debt structure feels manageable.
Revenue is increasing. Cash is moving. Customers are buying. Problems have a way of solving themselves when momentum is working in your favor.
That is often when businesses mistake good conditions for good financing.
Debt is tested when cash flow slows—not when revenue is accelerating.
A loan that feels comfortable during expansion can become restrictive during even a modest slowdown.
Principal payments remain. Interest remains. Covenants remain. Only the revenue becomes uncertain.
Operators rarely regret having too much flexibility during a downturn. They often regret not building enough of it beforehand.
The quality of a debt structure is not measured during favorable conditions.
It is measured by how many decisions remain available when conditions become unfavorable.
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