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Although the article keeps everything in the abstract, I think an example should compare the interest rates different businesses can get. Say, when rates are l

Although the article keeps everything in the abstract, I think an example should compare the interest rates different businesses can get. Say, when rates are low, an established business can get credit at 3%, and a startup at 6%. When rates are high, an established business can get rates at 6% and a startup at 9%. In this low-rate environment, the established business can take on 2x the leverage of the startup while paying the same interest, but in the high-rate environment only 1.5x. Low rates encourage all firms to use credit, but the countervailing competitiveness of large/stable firms diminishes the ability of startups to take advantage of it. This is all speculative on my part.

mathattack 8y ago
You’re partially correct. Large firms are less risky so they have easier access to credit. Smaller firms have a higher percentage of their value tied up in the future, so they get a bigger future value than the startup. (Safeway’s profits today will be within a few X of their profits in 2029. Slack’s could be 50X.)
charlesdm 8y ago
The question often isn't the interest rate. Any large multinational company can pay 1, 3 or 6% on debt. It's the amount of money firms can borrow. Banks are throwing money around at the moment, for free.