Borrowing changes the balance sheet and dilutes value. High interest rates increase the cost of funding and dilutes returns.
The problem with bank funding is that SME's require expert financial advice, yet they deal with virtually untrained junior bank officials who mostly have no clue about business. Bank loans usually have to be secured by collateral which virtually changes it to pawn broking. Banks are keen to finance franchises where they can paint by numbers, but assistance for any entrepreneurial venture which requires a bit of understanding is almost non existent.
A much neglected form of finance is factoring. Factoring is not borrowing, as an existing asset, the debtors book is discounted in order to improve cash flow. The balance sheet is not affected as an asset is converted to cash, with no borrowing shown on the balance sheet. Unfortunately factoring is a form of supply chain finance which is not suitable for retail business or very small entities. It works very well in a manufacturing environment though.
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