SMEs steering clear of debt funding

Small and medium-sized enterprises (SMEs) are reportedly steering clear of the corporate debt funding path when it comes to methods of raising finance.

A recent survey from BDO found that tradable debt is largely a mystery to small business bosses who are yet to feel comfortable with the market to make the most of it.

Scott Knight, a partner at BDO, remarked: “Historically, listed debt has been the preserve of blue-chips.” While this is slowly changing – with the number of companies that would prefer to raise money by issuing bonds has doubled year-on-year from six per cent – more than 40 per cent of bosses of small quoted companies would still opt to issue new equity to raise funds.

Looking ahead, just under 40 per cent of bosses said that they would be interested in issuing corporate bonds at some point in the future as an alternative, although it is clear that there is a lot to be learnt before this becomes possible.

Among the worries about issuing bonds was the inflexible nature of corporate debt, which has a fixed schedule of repayment and interest payments attached to it, which can prove problematic for a small business that will experience fluctuations in its cashflow over time.

While bonds come with some significant hurdles to overcome, they offer a much-needed alternative route to raising finance for an acquisition in tight economic times.

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