Searching for 'U' to Survive: Exploring Non-Linear Impacts of Debt forms on Young SMEs during COVID-19

Purpose – While previous literature has extensively examined the impact of debt financing on firm survival, few studies have specifically addressed this issue in the context of young small and medium-sized enterprises (SMEs). This study explores the impact of debt financing on firm survival, focusing specifically on young SMEs and exploring how the COVID-19 crisis influences the relationship between different types of debt and firm survival.
Design/methodology/approach – A logistic regression model was applied to a five-year panel dataset of 616 young Belgian SMEs, covering the period from 2019 to 2023.
Findings – The analysis reveals inverted U-shaped relationships between total debt, short-term debt, and long-term debt and survival, with optimal survival observed at intermediate levels of these debt types (45% for total debt, 30% for short-term debt, and 42% for long-term debt). Additionally, the financial strain caused by the pandemic reduces survival probabilities across all types of debt.
Originality – This study contributes to a better understanding of how debt strategies can improve the resilience of young SMEs in the context of economic shocks such as the COVID-19 crisis.