Why You Should Use Debt Like a Business
How I Structure Debt to Survive Cycles
Many readers ask me, often in private, how I think about using debt. Not debt to buy things, not debt to fund lifestyles, but debt as a strategic tool, as part of a treasury that is designed to resist the cycles and compound through them.
The question is a good one, because very few people really understand the answer.
Most approach debt like consumers, they use it emotionally, or worse, they see it as free money. When the tide goes out, as it always does, they discover they were swimming naked.
But debt, when used properly, can be the sharpest weapon in a treasury. The key is this, you must manage debt as a business does, not as a household does.
The first rule of this approach is brutally simple. Debt must be covered by cashflow, and not just any cashflow, but recurring, robust, and asymmetric cashflow.
If you borrow against collateral and hope that the value of the collateral will always rise, you are building a time bomb. If you build your system so that the flows generated by your assets cover the debt comfortably, you are building an engine.
In the corporate world, this is expressed through two lenses. One is structural, one is operational.
Structurally, businesses typically maintain net debt at around one to one and a half times EBITDA. In plain terms, for any unit of debt you take on, you want your overall operating cashflow to be strong enough to support that leverage ratio over time.
If you borrow $50,000, you should be generating at least $33,000 to $50,000 per year in EBITDA-like cashflow across your system. If you cannot do that, your system is fragile. It may work during good cycles, but it will crack under stress.
Operationally, and this is the part most people forget, what matters day to day is your ability to cover the actual debt service, meaning interest and principal repayments. This is what ultimately forces distress or allows compounding. Your assets must generate free cashflow that comfortably exceeds your debt service obligations. Ideally, you want at least 2x coverage, so that your system breathes, rather than gasps for air.
Now, many will ask, how can you apply this principle if your core reserves are in assets like Bitcoin or gold, which do not produce yield by themselves? How can you structure debt without selling your core, which defeats the purpose of having it?
This is where things become interesting.
You need to split your balance sheet into zones. Core reserves stay untouched, they are not there to be harvested, they are there to provide resilience, optionality, and to protect you from systemic risk.
Around the core, you build a cashflow engine, using assets that generate flow, that can cover debt, that can be scaled over time.
If you do this well, you are building a system that can compound in cycles, rather than one that merely survives them.
But let me show you how this works in practice.