Companies that are high leveraged rely on debt to finance their operations. This strategy only works well when business is going good, but once business slows down its hard to pay the debt. Relying on debt can force a company into bankruptcy quick. In the 1980s Donald Trump made this mistake because he didn’t want to give up managerial control by selling stock when he needed money to operate his business. Banks knew who he was so they lent him money but when the economy took a down turn in the late 1980s trump couldn’t pay up. Trump had to use a shedding method so he shed his real estate to pay the debt. This method of selling his real estate worked as Trump recovered and began to expand again in the 1990s. The business fact is that if you have the money use it to operate your business. Try to stay away from debt.
Reference: Steve Mariotti. 2007. Entrepreneurship-Starting and Operating a Small Business. Pearson. Chap 8. Pg. 208
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