For years now, the process of giving equity in a business away for start-up or scale-up capital has been normalised in popular culture with television shows like Dragons’ Den or Shark Tank. This is seen to be a way of receiving cash and guidance to help companies growth and scale. However, with the tech boom and failed IPOs of WeWork and Endeavour Group Holdings, entrepreneurs are now warier than ever to maintain their shareholdings without compromising their route to scale.
During this COVID-19 crisis, businesses have been under pressure to continue to pay staff, maintain premises and not disrupt their supply chains, but with some saying that up to a third of businesses may not get any additional help, they are looking for solutions to survive and then scale post-crisis.
Reece Tomlinson, CEO and Founder of RWT Growth, financial advisors for the global SME arena, has commented on why the culture towards business debt is changing and how COVID-19 is a catalyst for this shift.
“Governments across the world have tried to provide what they deem to be the best packages to protect their businesses, and in both the UK and US, loans have been offered to small and mid-sized businesses to help stay afloat. This has kickstarted a shift towards debt as a solution not only for survival capital but also for scaling capital once this crisis period is over.
“This cultural shift is hosted against a backdrop of failed tech IPOs and, frankly, entrepreneurs essentially losing control of a business they put their time and effort into, purely to stay afloat and relevant. Now, more and more SME leaders are looking at debt as a solution for them.
“Debt, for a long time, has been a scary word for people and businesses, but actually as intellectual property has become more valuable and more protectable, proven business concepts are more straightforward to borrow against, and private lenders know this. For investors, the risk is minimised, as there is protection against the loan and for entrepreneurs, they maintain their stake in the business and are able to lead from the front, often in a sector that they know considerably more about than a VC or investor.
“Historically, this fear around debt has resulted in limited options for the global SME market, but with this transformative business culture that has developed since the financial crisis of 2008, it is a valuable tool for business leaders. Embracing good debt options, particularly during this crisis period, could be vital for both survival and scale once this pandemic has passed.
“At RWT Growth, we help structure businesses to help take on scale-up capital, and during this period, many may be concerned about the future ahead. However, private debt may be the best and fairest solution for many global SMEs, and in a considerable number of cases, could be more competitive than the government support that is currently being offered. That is why it is imperative to explore all one’s options as a business leader, and consider debt as a competitive alternative to equity.”