Small Firms Avoid Debt When They Can
May 26th, 2008 | By Dawn R. Rivers | Category: ResearchSmall firms that are most likely to be using debt financing are younger, smaller, less profitable, less liquid, and less credit worthy. At the same time, firms with more tangible assets and less personal liability on the part of the business owner are also more likely to opt for debt financing. In fact, the most significant predictors of debt financing are firm age and firm size. These are the major findings of new research released last week by the SBA Office of Advocacy. The most relevant information this research offers to most of us is simply this: the small firms with the greatest need for debt financing are those that are most likely to have trouble getting it. In fact, if this research has one serious flaw, it is the assumption that the capital structure of small firms involves conscious decision-making at all. As often as not, those decisions are made by financial institutions, not by microbusiness owners.
