Debt finance stigmatised among SMEs
Small- and medium-sized enterprise (SME) leaders are not meeting their growth ambitions due to negative connotations surrounding debt, new research has found.
A survey commissioned by alternative finance provider Growth Lending found that only 20 per cent of the 300 SMEs surveyed for its Don’t Bank On It report regarded debt as a necessary part of growth.
Despite this, 43 per cent of the SMEs surveyed described their need for investment as “significant”.
One in three SMEs (34 per cent) were not willing to try alternative sources of funding due to debt fears. Similarly, 27 per cent of business leaders cited an unwillingness to get into debt as a reason not to borrow from traditional banks.
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The research found that perceptions of debt differed considerably between generations. Those in the 25-34 age group were more than three times more likely to think that debt is a necessary part of growth (26 per cent) than those aged 55-64 (8 per cent).
In addition, 64 per cent of respondents aged 55-64 would not use a traditional bank to fund their business due to debt fears.
This generational difference may suggest that attitudes towards debt have altered over time, with younger business leaders more likely to understand the growth opportunities it can unlock for a business.
Moreover, the perception that they have a lifetime ahead of them to pay off debt, may mean young entrepreneurs are also less risk averse.
The research highlighted a lack of awareness of some debt funding solutions, with 72 per cent of those surveyed not being aware of venture debt as a form of funding.
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“Debt finance can be a valuable tool for high-growth businesses looking to invest in people or products, make acquisitions, or break into new markets,” Growth Lending chief revenue officer Lauren Couch said.
“Leveraging good debt to grow a business shouldn’t come with stigma, but our research highlighted that debt is widely perceived negatively, rather than as an opportunity for growth.”
She said negative perceptions of debt seem to be more common with alternative finance than with bank loans, suggesting that greater education is required on the funding options available to businesses.
“Encouragingly, it does seem that perceptions are shifting, particularly among younger entrepreneurs who recognise the growth potential of non-traditional funding means,” she added.
“With 33 per cent of the SMEs trying to raise funds doing so to promote growth, many are missing out on the opportunities that debt finance can unlock, enabling product development, scaling up and even international expansion, with the right lender’s support.”
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