SMEs in the Midst of Crisis: The Role of Debt Policy in Fostering Survival for Newly Created SMEs

This study aims to explore the relationship between the debt policy of newly created small and medium sized enterprises (NC-SMEs) and their survival. While previous literature has explored how debt choices affect the ability of SMEs to overcome economic crises, little attention has been paid to the specific characteristics of NC-SMEs. Using a sample of 3,718 SMEs founded in 2018 and in business for at least two years, the study analyzes the impact of long-term versus short-term debt policy on their survival during the COVID-19 pandemic. Results from logistic regression model show that both long-term and short-term debts are positively associated with survival. In addition, the positive impact of long-term debt on survival is weakened during the COVID 19 crisis whereas the positive influence of short-term debt on survival is enhanced during the pandemic. Overall, this study deepens our knowledge on how the debt policy of NC-SMEs affects their ability to weather the storm during an economic downturn.