The Institutional Approach
Professional capital allocators use debt when three conditions align: asset returns exceed borrowing cost by 3-5% consistently, cash flow covers debt service 1.5x+ in base case, and 2x+ in recession case. Outside these parameters, debt becomes speculation.
The Debt Menu
Operating debt (working capital lines): use when cash conversion cycle is longer than payment terms. Real estate debt: use on stable income-producing properties. Business acquisition debt: use on established profitable businesses. Avoid: debt on speculative assets, debt without clear refinance path, debt with covenant breaches.
The Waiting Game
Sometimes the best strategy is to wait. If debt costs 9% but available returns are only 8%, wait. If you lack clear cash flow coverage, wait. If you are in uncertain market cycle, wait. Patience is the institutional advantage most founders lack.
Debt is a tool. Use it when conditions favor you dramatically. Wait when conditions are marginal.