Why Some Investments Should Come From Borrowed Capital—and Others Shouldn’t
In 2025, interest rates, asset lifespan, and strategic goals all shape how ceramics and refractories leaders fund large-scale investments. The question isn’t just whether to spend—but how to structure the spend.
Use Debt When the ROI Outpaces Cost of Capital
If a project generates a 15% IRR and debt costs 7%, borrowing makes strategic sense. This is especially true for long-life assets like energy-efficient kilns or automation systems with predictable performance.
Pay Cash for Tactical, Short-Term Gains
Working capital–funded projects—like inventory racking, vehicle purchases, or minor IT upgrades—are better paid directly. These tend to deliver quick payback and don’t justify long-term financing.
Factor Debt Into Capital Stack Discipline
Too much CapEx on debt can erode DSCR (Debt Service Coverage Ratio) and limit your ability to borrow for growth M&A or critical maintenance. Leading firms segment CapEx by financing type in their long-range financial plans.
Link Capital Source to Project Risk
High-risk initiatives (like entering new markets or piloting new tech) may be better funded internally to avoid debt burden if they underperform. Proven, recurring-value projects are ideal candidates for structured financing.
Consider Tax Treatment and Depreciation
Interest on debt is tax-deductible, and asset depreciation can help offset income. Build a full lifecycle cost model—including tax implications—before finalizing your capital structure.
