Companies that borrow are sixteen-times more likely to achieve growth than face insolvency

New research by ThinCats has found that mid-sized companies that borrow are sixteen times more likely to achieve growth than face insolvency.

The data found that companies that borrowed were more likely to achieve growth than non-borrowers, with the level of borrowing proportional to growth potential.

Nearly 40% of mid-market SMEs have achieved revenue growth of at least 5% above inflation in the last two years. Companies borrowing significant amounts (i.e. over £5 million) are sixteen times more likely to achieve super growth (50% above inflation) than to face insolvency.

The combination of private equity (PE) backing and debt financing increases the chances of achieving any level of growth. The data shows that in the past two years borrowers with PE backing have been twice as likely to achieve strong growth and four times more likely to achieve super growth.

The average insolvency rate among UK mid-sized firms over the 2007- 2023 period was 1.4%. Companies who borrow are 31 times more likely to achieve growth (5% above inflation), increasing the chances of growth significantly while only minimally increasing the likelihood of insolvency.

The UK economy today is almost unrecognisable compared to the one five years ago, huge shifts in tech adoption alongside changing consumer and business habits have transformed the fortunes of almost all sectors. ThinCats’ analysis shows that only eight of the pre-Covid top 20 growth sectors retained their position post-Covid.

Growth during 2007-2019 was strongest within finance and IT-related sectors, recruitment and employment agencies. However, post-Covid, all of the top 10 strongest performing areas have seen significant declines within sectors like social sciences, financial services and pharmaceuticals. Post-Covid, discretionary spend businesses such as travel agencies, automotives, hotels and restaurants all moving into the top 20. The healthcare sector, covering private residential nursing homes and hospitals, also moved into the top 20.

Regionally, pre-Covid, parts of the North were strongly represented among the top-growing regions: eight of the highest-growth postcode areas were located in the North versus two in Greater London. However, post-Covid, London has reasserted its dominance with six of the top 20 growth postcodes in Greater London compared to just four in the North.

The new data comes alongside recent findings from the British Business Bank which highlighted a lack of lending and investment among smaller businesses. In March, the Department for Business and Trade launched a call for evidence to assess the debt finance market among small businesses.

Ravi Anand, Managing Director, ThinCats said “This data is genuinely remarkable and highlights the huge leaps that companies can make by taking on external finance. It’s understandable for smaller businesses, who are less sophisticated and where bank lending can come with understandable fear and risk. However, for mid-sized businesses, borrowing can help the journey to improve productivity, invest in people or fund their acquisition strategy.

“The Government is looking at the small business finance market as a key part of the bigger picture of how we get growth in the economy. There needs to be joined up thinking to help businesses get the right finance at the right time to grow.”