My credit card company – a major but currently ailing US bank – has unilaterally increased the limit of my credit card.  On calling them, they told me that they would only reduce it if I submitted myself to a painful procedure through their call centre bureaucracy. Essentially, they tried to push me into taking more credit than I was comfortable with.

The same, to some extent even today, is happening with companies too.  Banks try to induce conservatively managed family companies into doping themselves to faster growth with borrowings. Than, when recession or a banking crisis hits (every ten years or so) they start calling the loans to shore up their own balance sheets. Not exactly what I would call “relationship banking”.

A client of mine was sold an interest rate swap, that offered “interest rebates”, provided the HUF:EUR exchange rate moved within +/-10% band of its long term historic average. If the rate went out of range, my client could potentially lose his capital. When the euro breached HUF 300 this spring, he was close to losing his business and remain responsible for life to repay a loan.

Some years ago, I was a fervent believer in leverage, but since have became a convert to conservative business financing. Now I hold that a business must be run with a healthy financial cushion for rainy days.  Beware the siren song of bankers who preach you loans. Borrow – at most – for projects, which generate cash flow sufficient to service the debt financing it, or if you can buy yourself a business with an affordable personal downside.