--- title: "Debt is Good: The advantages of debt finance for an SME" description: SME Capital look at the benefits of debt finance for SMEs and the concept of Debt being a good thing. image: https://insights.smecapital.com/hubfs/smecapital-blog-title-sm-May-08-2024-02-49-46-7332-PM.png --- [![](https://insights.smecapital.com/hubfs/SME%20Capital%20Images/smecapital-logo.svg)](https://www.smecapital.com) [Business Funding](https://www.smecapital.com/business-funding) [Portfolio](https://www.smecapital.com/portfolio) [Case Studies](https://www.smecapital.com/case-studies) [News & Insights](https://insights.smecapital.com/) [About us](https://www.smecapital.com/about-us) [Contact](https://www.smecapital.com/contact-us) Legacy [For Investors](https://www.smecapital.com/legacy-invest) ** [Log in](https://app.smecapital.com/) Looking for funding × [Business Funding](https://www.smecapital.com/business-funding) [Portfolio](https://www.smecapital.com/portfolio) [Case Studies](https://www.smecapital.com/case-studies) [News & Insights](https://insights.smecapital.com/) [About us](https://www.smecapital.com/about-us) --- Legacy [For Investors](https://www.smecapital.com/legacy-invest) --- [Contact](https://insights.smecapital.com/debt-is-good-for-smes#) [Log in ](https://app.smecapital.com/) Looking for funding **![back-chev](https://insights.smecapital.com/hubfs/back-chev.svg) [News & Insights](https://insights.smecapital.com)** # Debt is Good: The advantages of debt finance for an SME's growth strategy  Most of us don’t care much for debt. A lot of us are taught from an early age that debt is bad, and we should try to avoid being in debt at all costs. Over-exposure to unsecure credit card and personal loan debt can be incredibly damaging to an individual and a business.  But when can debt be a good thing? A well thought out business plan that incorporates an injection of debt capital into a business’s growth plan can actually be a cheaper form of financing than equity. Debt can be a catalyst for growth, expansion, and value creation in business operations when used strategically.  In fact, a majority of companies tend to carry more debt than equity on their books. So, what are the [advantages of debt finance for a business](https://insights.smecapital.com/the-benefits-of-debt-capital-funding-for-business-owners)? Firstly, in the UK, debt financing interest payments are considered a cost and so are tax deductible. This one feature of debt financing contributes to the fact that it is a more alluring method of financing than the usage of equity. The amount of interest payments, for instance, shields that amount of revenue if your business' marginal tax rate is 19%. This can save a company money, which can be used to invest in other areas or cover operational expenses. Secondly, debt is a much cheaper form of financing than equity.  Generally speaking, equity financing is more expensive than debt financing because interest payments are tax deductible, the interest rate you receive when using debt financing will be lower than the cost of equity. Also, because a company typically has no legal obligation to pay dividends to common shareholders, those shareholders want a certain rate of return.  Debt is much less risky for the investor because the firm is legally obligated to pay it. ![Growth - SME Capital](https://insights.smecapital.com/hubfs/smecapital-blog-title-May-08-2024-02-49-13-1122-PM.png "Growth - SME Capital") Investing in Growth Opportunities With debt capital in place, [businesses can invest in growth initiatives](https://insights.smecapital.com/how-to-grow-and-innovate-your-business-with-debt-financing) such as expanding product lines, entering new markets, or acquiring competitors. In such cases, taking on debt can provide the necessary funds to fuel these strategic endeavours without diluting ownership or sacrificing control.  By leveraging debt to seize growth opportunities, a business can accelerate their expansion efforts and strengthen their competitive position in the market. In particular, opportunities to generate significant value through strategic investments or acquisitions can be funded by business loan finance.  Managing seasonal or cyclical Cash Flow can be served by debt, providing a valuable safety net source managing cash flow fluctuations by providing access to liquidity during lean periods.  **Access to Debt Funding** Accessing the right type of funding, at the right time, that’s right for an individual business – has become significantly challenging more as banks retrench bank loans for SMEs. Government support programmes for SMEs and sector specific funds from VC’s have lessened of late, resulting in businesses looking at the more traditional routes of applying with their bank for debt capital business loans or taking on outside investment in exchange for equity. But with banks rejecting SME business loans and business owners reluctant to give up shares, alternative debt lenders are now primed to help SMEs access capital outside of traditional lending institutions. [SME Capital Debt Financing](https://www.smecapital.com/business-funding) helps SMEs with specialised long-term financial alternatives that allow them to invest and scale their business without worrying about their cash flow. We provide specialised, long-term financial alternatives rather than a general loan that applies to all businesses in the UK. At SME Capital we do not ask for personal guarantees or collateral. We are experts in this field, and our priority is to become your long-term funding partner and develop trusted relationships. We are here because we firmly believe that our specifically designed finance solutions for UK companies, which will aid in your growth and success, represent a better option. As experts in SME lending, every customised loan we make for you will be designed especially with the goal of becoming your long-term finance partner. Whether you need financing for a refinance, succession planning, M&A, or growth and expansion, we give you the opportunity to thrive without asking you to give up control, equity, or personal assets. SME Capital uses a cash flow-based approach to lending, offering a multiple of business profitability, specifically EBITDA, as opposed to a loan amount being directly tied to the value of specific assets. We can provide an economic solution to consolidate smaller lenders, or refinance expensive short-term loans, while providing additional working capital for the business. With repayment terms from 3 to 7 years and flexibility on repayment structures SME Capital is an effective, relationship-led, refinance solution for qualifying businesses in any sector that have been trading more than 3 years with £250,000+ EBITDA. **About SME Capital** [SME Capital ](https://www.smecapital.com/)was founded to support the growing number of SMEs who face difficulty or frustration in accessing capital through traditional methods. We understand the importance of real and trusted relationships in the SME lending market and have dedicated Regional Directors based across the UK. By combining traditional lending expertise with the latest in data analytics, we are supporting established UK SMEs with their long-term objectives and business ambitions. May 2024 **Share** Copy article link **Latest News & Insights** **Keep Updated** Everything you need to know about all things SME Capital straight to your inbox [**Sign up now** ](https://www.smecapital.com/sign-up)[![more](https://insights.smecapital.com/hubfs/SME%20Capital%20Images/sprite%20icons/more.svg)](https://www.smecapital.com/sign-up) [![Business Plans - SME Capital](https://insights.smecapital.com/hubfs/smecapital-blog-title-sm-Sep-18-2023-02-47-41-6062-PM.png "Business Plans - SME Capital")](https://insights.smecapital.com/how-to-grow-and-innovate-your-business-with-debt-financing) [**How to Grow and Innovate your business with Debt Financing**](https://insights.smecapital.com/how-to-grow-and-innovate-your-business-with-debt-financing) SMEs are at the heart of the UK’s economic development and a large part of their existence and success is down to getting the right funding.  [![Female Business Owners - SME Capital](https://insights.smecapital.com/hubfs/SME%20Capital%20Inflation%20Blog%20Images-4.png "Female Business Owners - SME Capital")](https://insights.smecapital.com/factors-to-consider-when-planning-a-buy-and-build-strategy) [**Factors to consider when planning a Buy and Build Strategy**](https://insights.smecapital.com/factors-to-consider-when-planning-a-buy-and-build-strategy) In this blog, we look at 3 core factors to consider when planning a Buy and Build Strategy Looking for funding? Start today. Whether you are an eligible business or an intermediary advisor our regional directors are on hand to discuss your funding requirements and feasibility. 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