preserve continuity.
How much debt is right for your company is a question about balance. Borrowers should balance financing needs and abilities to preserve a steady flow of capital - to fund important initiatives and maintain untapped financial reserves during good and bad times.
In 1982 - amid a recession triggered by elevated inflation and rising rates... - Harvard Business Review published an article titled "How Much Debt Is Right for Your Company?" (worth a read if you have the time). The lessons hold up quite well and reference some interesting research on the costs and benefits of using debt (including from capital structure theory founding fathers Modigliani and Miller). The authors conclude there is no simple formula to arrive at the optimal level of debt, but instead a series of qualitative/quantitative strategic, operational and financial considerations that must be balanced to preserve continuity of financing (see article for list).
Preserving continuity of funds is critical for borrowers to maintain flexibility and protect their business. Being unable to access capital when required has far-reaching costs, including lost opportunities due to a lack of sufficient resources, overly cautious operating and investment strategies and competitive vulnerability to better-positioned peers.
The Uncommon Borrower preserves continuity of financing - they 1) continuously evaluate and balance their strategic goals, operating policies and ability to raise funds, 2) test qualitative/quantitative factors for viability in good and bad times, considering variation of market and lender attitudes, and 3) establish trusted and reliable sources of capital when times are good.