Conversation - CA Srini & Sudhir - “How Much
Debt Is Too Much?”
Sudhir stepped into the cabin looking a little worried. “Anna,
you know how I run my business. I’ve always believed in taking loans to expand
or even manage day-to-day operations. But nowadays, whatever I earn seems to
disappear into interest payments.”
Srini looked at him calmly. “Sudhir, the issue isn’t debt
itself. Debt is just a tool. The real question is whether the tool is working
for you or whether you’re working for the tool.”
Sudhir exhaled deeply. “Some months I genuinely earn well,
Anna. But many times, the banks take away most of my margins. It feels like I’m
slogging for them.”
“That happens,” Srini said gently, “when borrowing becomes a
habit rather than a strategic decision. If the returns from the borrowed funds
exceed the interest you pay, debt becomes leverage. It amplifies growth. Like
how a home loan helps someone own an appreciating asset while repaying slowly.”
“In business also, I use debt in the same way,” Sudhir said.
“If a big order comes, I borrow to execute it.”
“That’s the right kind of debt,” Srini agreed. “Debt that
helps you seize an opportunity is productive. But recurring borrowing to manage
routine shortfalls, month after month, that becomes risky.”
Sudhir nodded slowly. “Honestly, Anna, sometimes I take loans
just to keep the business rolling. Not because there’s a real opportunity.”
“That’s exactly where caution is needed,” Srini said. “Debt
should fuel growth, not patch up structural issues. If it’s funding losses or
chronic cash flow gaps, it becomes a burden.”
Sudhir switched gears. “At least debt helps build my credit
score, right?”
“Yes,” Srini replied. “A clean repayment record improves
creditworthiness. Better credit means lower interest rates and smoother access
when you truly need funds. But that doesn’t mean you should overload yourself.”
“And what about tax benefits, Anna? People say the interest
deduction is helpful.”
“It is,” Srini confirmed. “But saving tax should never be the
main reason to borrow. A deduction never offsets the cost of an unnecessary
loan.”
Sudhir leaned back in his chair. “Debt gives liquidity too.
Instead of blocking my capital, I can keep some cash free.”
“That’s another advantage,” Srini said. “Debt, when used
properly, helps maintain liquidity. And with inflation, repaying fixed-rate
loans in future rupees may even work in your favour.”
Sudhir smiled finally. “So debt can be leverage, liquidity,
opportunity, even protection against inflation, but only if used
intentionally.”
“Exactly,” Srini said. “Borrow for purpose, not out of habit.”
Sudhir nodded. “Understood, Anna. Time to rethink how I’m
borrowing.”
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