The End of Cheap Capital

Executive Introduction

For years, cheap debt made many strategic choices feel easier. Growth investments, acquisitions, digital bets, buybacks, and operating expansion could often be justified because capital itself was inexpensive. But that environment has changed. Michael Mankins and Matthew Crupi’s The End of Cheap Capital is a timely reminder that leadership teams can no longer rely on low borrowing costs to mask weak returns, slow paybacks, or fuzzy strategic logic.

The article’s core message is clear: as capital becomes more expensive, companies must bring financial discipline back to the center of strategy. The authors frame the post-2008 period as one in which central banks pushed rates to historic lows and quantitative easing flooded markets with liquidity; from 2008 to 2020, borrowing costs for many large companies were at or below inflation, making debt feel almost free in real terms.   Today, that assumption is no longer safe: the Federal Reserve’s June 17, 2026 statement kept the federal funds target range at 3.5%–3.75%, with inflation still elevated relative to its 2% goal.

Overarching Theme

The end of cheap capital forces a return to value discipline. Leaders need to scrutinize where capital goes, how returns are measured, and whether growth initiatives truly create value after accounting for the cost of money, risk, execution capacity, and strategic opportunity cost.

Major Takeaways for Business Leaders

Capital allocation is now a strategic capability, not just a finance exercise. Higher capital costs mean leadership teams must be more selective about which projects, acquisitions, innovations, and transformation programs receive funding.

Growth for growth’s sake is harder to defend. When money was cheap, companies could tolerate long payback periods and optimistic assumptions. In a tighter capital environment, projects need clearer economics, stronger milestones, and more disciplined portfolio reviews.

The CFO’s role becomes more central to strategy. Finance leaders should not simply police budgets; they should help the business distinguish between value-creating investments and capital-consuming activity.

Stakeholder commitments still matter, but tradeoffs must be explicit. A related HBR article by the same authors, Bring Back Managing for Value, argues that companies need disciplined resource allocation without abandoning commitments to employees, customers, and the environment.

Leaders need to relearn the time value of money. HBR has also covered how years of near-zero rates caused many managers to pay too little attention to interest rates, discounting, and the time value of money.

Talking Points for Executives

Use these in a leadership meeting, board discussion, or strategy offsite:

1. “Which of our major initiatives still clear the bar under today’s cost of capital?”
2. “Are we funding too many projects because they are strategically interesting, or only the ones that can create measurable value?”
3. “Do our capital allocation rules reflect current rates, inflation, and risk?”
4. “Where are we using cheap-capital-era assumptions in forecasts, valuations, or M&A models?”
5. “What should we stop, pause, or redesign because the economics no longer work?”

Reflection Questions

For the CEO: Are we still pursuing a strategy built for a low-rate world?

For the CFO: Do our hurdle rates, payback expectations, and capital review processes reflect current market realities?

For business unit leaders: Which investments would we still defend if capital were scarce and every dollar had to compete?

For the board: Are we rewarding disciplined value creation, or are we still celebrating growth, scale, and activity without sufficient return scrutiny?

For strategy teams: Do our models clearly separate strategic conviction from financial wishful thinking?

Potential Action Items

Revisit hurdle rates and investment criteria. Update capital allocation models to reflect the current cost of debt, equity expectations, inflation, and risk.

Create a capital allocation council. Bring finance, strategy, operations, and business unit leaders together to review major investments against a consistent value framework.

Rank the investment portfolio. Sort projects into “fund,” “fix,” “pause,” and “exit” categories based on expected value creation, strategic relevance, and execution confidence.

Stress-test assumptions. Model downside cases for revenue growth, margin improvement, refinancing costs, and time-to-payback.

Tie incentives to value creation. Rebalance executive and business-unit metrics away from pure revenue growth and toward return on invested capital, free cash flow, economic profit, or other value-based measures.

Make tradeoffs visible. Require major proposals to state what will not be funded if the project is approved.

Recommended Similar Articles

Bring Back Managing for Value — Michael Mankins and Matthew Crupi. A natural companion piece by the same authors on balancing disciplined resource allocation with commitments to employees, customers, and the environment.

Managers Need to Relearn How Interest Rates Work — Harsha V. Misra. Useful for leaders who need a refresher on how higher rates change decision-making, discounting, and the time value of money.

6 Factors That Determine Your Company’s Valuation — John Trustman and Louise Keely. Helpful for executives who want to understand how investors value companies and how management decisions connect to market expectations.

The 5 Types of AI Investment—and How to Capture Their Value — Baba Prasad. Relevant for leaders deciding how to fund AI initiatives when traditional ROI timelines may not fully capture strategic value.

Boards Often Misunderstand What Stock Buybacks Really Cost — Joseph Comprix, Kevin Koharki, and Anup Srivastava. A strong board-level read on how capital return decisions can obscure real economic costs, especially when buybacks offset stock-based compensation dilution.