When zero debt becomes a dangerous number in business

Policymakers face a quiet paradox. The state urges businesses to invest while its own domestic borrowing competes for the same bank balance sheet. [Courtesy]

"For which of you, desiring to build a tower, does not first sit down and count the cost, whether he has enough to complete it?" (Luke 14:28, ESV)

Would you rather owe a bank a fixed sum, or owe a stranger a fifth of your future forever?

A shopkeeper who won't borrow to mend his roof owes the bank absolutely nothing. But the rain will destroy his stock.

Imagine you need Sh10 million. The bank wants Sh10 million back, plus interest, then leaves your life. A stranger wants a fifth of your company; grow it into a Sh2 billion enterprise, and that favour costs Sh400 million.

Debt is strategic heaven to the founder, and strategic partnership, equity or a joint venture is a tactical hell. Winners may be those who learned to borrow wisely, not those who are debt-free.

This week's signal

Banks are always lending; cautious firms are still watching from the shore. Kenyan banks advanced Sh326.5 billion in micro, small and medium enterprise (MSME) loans in 2025, more than double their target, according to the Kenya Bankers Association.

By July 2026, private sector credit growth had reached 10.2 per cent and average lending rates had eased to 14.3 per cent, according to the Central Bank's committee.

Yet the five largest lenders supplied about three-quarters of that new MSME credit, and commercial banks held about Sh2.2 trillion in government securities as of March this year, 27 per cent of their assets, according to the World Bank's July Kenya Economic Update, which warned that heavier domestic borrowing could crowd out private credit.

Now watch a corporate giant. In the year to March 2026, Safaricom Ethiopia's foreign currency debt more than doubled, from Sh12.9 billion to Sh30.2 billion, and equity's share of its Sh342 billion funding slipped from roughly 90 per cent to 86 per cent.

Safaricom described the borrowing as an optimal capital structure, while conceding it would have preferred birr debt to match local revenue, but local Ethiopian banks lacked sufficient capacity.

That is not recklessness. It is a company that knows who owns the upside.

What it means for business

Zero debt feels like safety, yet it caps growth at the speed of retained earnings and leaves you with no credit history when a shock arrives. Three disciplines separate smart borrowers from reckless ones.

 First, understand what equity really costs. Debt has a maturity date, a calculable price and a clean exit: repay it and the relationship ends.  Equity has no end date; the investor shares every future profit, forever.

Second, borrow before you need to. Banks lend generously to firms that look strong and reluctantly to firms that look desperate, so the best time to arrange a facility is when your cash flow is calm.

Third, count the cost. Borrowing at 14.3 per cent to finance a venture returning, say, 10 per cent does not build a business; it funds a bank.

Returns must comfortably exceed the cost of money. Debt serves founders who do their sums; it punishes those who do not. Foresight leadership means arranging the umbrella in sunshine.

What it means for policy

Policymakers face a quiet paradox. The State urges businesses to invest while its own domestic borrowing competes for the same bank balance sheets.

When government securities offer predictable returns without the labour of credit assessment, banks may drift toward safety, and smaller firms feel it first.

The State-backed credit guarantee scheme, partly credited by analysts for the 2025 surge, deserves protection and scale.

Concentration is a risk, so the lending base must widen beyond the top five banks. Prudence cannot be the monopoly of the already big.

What It means for the people

A firm that borrows prudently can hire, train and pay better; one frozen at zero debt often struggles to raise pay.

 Households play by different rules; business debt buys assets that earn, while consumer debt usually buys moments that fade. Clear expensive personal borrowing before you save, because savings earning less than your debt costs are slow bleeding.

Afterthought

Debt was never the villain, and strategic partnership, joint ventures and equity were never the enemy. They are all valid tools to grow a business.

The builder in Luke is not told to stop building. He is told to count first, so that the tower stands. Count the cost of borrowing, and the cost of refusing to borrow.

Before your next board meeting, sit down and ask four questions: what will the money do, what will it return, can cash flow carry it comfortably, and what is the plan if it underdelivers?

Then decide deliberately, not by habit. Foresight begins there. "Decisions are made on the radar screen, but the future is yours."

The Author is a human-centred strategist and leadership columnist