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Debt fears holding London SMEs back from seeking investment

by LLB Finance Reporter
9th Mar 23 10:02 am

Business leaders in London are being held back from meeting growth ambitions due to negative connotations surrounding debt, according to research from Growth Lending.

While debt can be an invaluable tool to unlock a business’s potential, only a third (33%) of the London SMEs surveyed for the Don’t Bank On It report see debt as a necessary part of growth.

Despite 65% of SMEs surveyed in London describing their need for investment as “significant”, many are missing out on funding opportunities due to the stigma around debt. One in three SMEs (33%) are not willing to try alternative sources of funding due to debt fears. Similarly, 9% of business leaders in the capital cited an unwillingness to get into debt as a reason not to borrow from traditional banks.

More widely, perceptions of debt differ considerably between generations. Those in the 25-34 age group are more than three times more likely to think that debt is a necessary part of growth than those aged 55-64 (26% compared to 8%). In addition, 64% of respondents aged 55-64 would not use a traditional bank to fund their business due to debt fears.

This generational difference suggests 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, with the perception that they have “a lifetime ahead of them” to pay off debt, young entrepreneurs may also be less risk averse.

The research also highlighted a lack of awareness of some debt funding solutions, with 76% of London SMEs surveyed not being aware of venture debt as a form of funding. Coupled with the lack of awareness of the role it can play for SMEs on their growth journey, the findings suggest that further education on alternative finance options is needed.

Lauren Couch, Chief Revenue Officer at Growth Lending said: “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. 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.

“Negative perceptions of debt also seem to be more common with alternative lending streams than with bank loans, showing that further education is required on the reality of 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.

“With 44% of London 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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