Emil, I’ve no problem with companies serving the interests of their shareholders or with paying dividends. In fact, I wish companies paid more in dividends these days, as it is a more honest way to reward shareholders than the shenanigans many companies engage in to hype up their share price.

However, this doesn’t mean the company has to pay out all profits as dividends. An otherwise sound business going bust because it is suddenly unable to borrow will not benefit the shareholders much. The archives on this blog have some wonderful examples of companies who borrowed lots of money just to do share buybacks, with bad results

http://jeffmatthewsisnotmakingthisup.blogspot.com/

Kay Tie, I agree about VCs. The company I work for has got into some trouble over the years with bank loans, but fortunately we could never deal with VCs, as we are unable to issue equity.

Oh, and if we had to grow from retained profits we’d be dead (since we don’t have any profits, and even if we did they wouldn’t be enough to fund the growth we need to chase).

Startup? This is your situation now, but surely you plan to one day have sufficient profit to not just be self-sufficient financially, but to pay back the capital invested?

Tax benefits? Eh? As a business owner with a SFLG loan and VC money, I’ll take a loan over equity investment: it’s much cheaper capital (VCs usually look for an IRR of 40%/year in early-stage). Tax doesn’t come into it.

Oh, and if we had to grow from retained profits we’d be dead (since we don’t have any profits, and even if we did they wouldn’t be enough to fund the growth we need to chase).

I’m sure debt is wonderful for making certain statistics look good in the annual report. I’m just not sure it is always so great for the actual operations of the company, particularly in a bad economy when borrowing suddenly becomes harder.