[tboyd47]

True; but the revenue / additional market share is never a sure thing. The company can't make a contract with the universe. The interest payments, however, are a contractual obligation.

[manishsharan]

Think of a restaurant that needs a new fryer because the one they had broke down. Wihout that new fryer , they will lose their business and livelihood. Debt allows them to make a risk calculation : they will take on an additonal overhead of deb servicing and in return they will keep their business.

Now think of a dentist who wants to open her own practice. Her savings may not cover the cost of buying equipment that is needed. An asset backed loan may be a better opion for her. Of course, there is a risk involved -- she may not generate enough revenues to cover the cost of servicing the debt or her other liabilities. Typically she would consult with her accountant before starting on this journey.

I would argue thay contractual obligations and regularity and severity with which they are enforced are a sobering influence on businesses. There are no contacts with universe needed for debt -- but there is an element of risk that needs to be accounted for.

edit : typos

[dragonwriter]

> The company can't make a contract with the universe. The interest payments, however, are a contractual obligation.

Debt restructuring and bankruptcy are things, too. A contractual obligation isn't immutable or inviolable.

[Nasrudith]

The interest payment is partially because of the risk in the first place. Collateral if any is the only guarantee to the lender. They are taking the risk of losing it all or using a complicated yet sensible metainsurance plan at the cost of direct profit.

If hypothetically we could see the future perfectly the financial market would start to look downright weird as predestined to fail loans would always be rejected but approved loans would go low margin from competition.