Corporate Borrowing: When Does Debt Become Too Risky?
Global corporate borrowing reached a record level in 2025. According to the Organisation for Economic Co-operation and Development (OECD), companies raised approximately 12.20 trillion EUR through bond issuance and syndicated loans in global markets, marking the highest level ever recorded in real terms. The total outstanding amount of this debt reached 53.01 trillion EUR by the end of the year. These figures do not necessarily indicate that companies are overleveraged, but they raise an important question: will businesses be able to meet their debt obligations over the long term, particularly if financing costs increase? (Source: OECD, Global Debt Report 2026).
Two Possible Scenarios
When companies use borrowed funds for productive investments, business expansion, and efficiency improvements, debt can support long-term growth. Higher revenues and more stable cash flows enable them to meet their repayment obligations regularly while continuing to invest in their businesses.
A different situation arises when revenues fail to grow sufficiently, operating costs increase, or companies struggle to refinance their existing debt. According to the OECD, approximately 24% of outstanding debt issued by investment-grade companies and 31% of debt issued by below-investment-grade companies will mature between 2026 and 2028. A significant proportion of these bonds were issued at lower interest rates, meaning that refinancing them could increase future financing costs. (Source: OECD, Corporate Debt Market Outlook 2026).
Despite these risks, current conditions do not indicate a general deterioration in the creditworthiness of all companies. In its Global Financial Stability Report, April 2026, the International Monetary Fund (IMF) notes that the proportion of corporate debt held by companies whose operating earnings are insufficient to cover their interest expenses has not deteriorated significantly in recent years. Relatively stable business performance and corporate cash reserves have helped support this position. (Source: IMF, Global Financial Stability Report, April 2026).
How Can Companies Reduce Financial Risks?
When planning their borrowing, companies should monitor three key indicators:
Interest coverage: Are operating earnings sufficient to cover regular interest expenses?
Cash Flow and Liquidity: Does the company have sufficient available funds to meet its short-term obligations?
Debt Maturity Profile: Are future debt repayments sufficiently spread out to avoid being forced into extensive refinancing under unfavourable market conditions?
In addition, companies should assess different financial scenarios before making major investments, including the possibility of lower revenues, higher interest rates, and slower business growth.
When Does Debt Become Too Risky for a Company?
Borrowing is not inherently negative and remains an important instrument for financing business growth. The key distinction lies between debt that creates future value and debt that a company increasingly struggles to repay.
Long-term business success will not necessarily belong to companies that borrow the least, but rather to those that know how to align their financial obligations with actual revenues, investment objectives, and their ability to generate cash flow. In an environment of financial uncertainty, effective debt management will remain one of the key factors determining long-term business stability.
Sources:
