When Borrowing Stops Feeling Strategic
Executive Summary
As we navigate 2026, the global credit environment for SMEs has shifted from "liquidity-driven expansion" to "survival borrowing." Facing a $1.8T maturity wall and 8.4% average rates, many firms are using debt not for growth, but as a raft—funding past expenses rather than future assets. This report dissects the mechanism of this trap and the imperative for deleveraging.
Core Strategic Insight
There is a threshold where debt ceases to be leverage and becomes a permanent tax on future cash flows. The "funding gap"—the difference between maturing debt and available refinancing—is forcing viable businesses into unviable structures.
1. The "Good Debt" vs "Bad Debt" Inversion
"Good debt" funds assets with ROIC > Cost of Debt. "Bad debt" funds losses. Today we see "Bridge-to-Nowhere" debt: capitalization of operational inefficiency. Buying survival at the cost of future solvency.
2. "Extend and Pretend"
Banks are rolling over loans to "zombie" firms to avoid recognizing losses. This symbiotic lethargy prevents creative destruction and traps capital in low-productivity firms.
Adjust debt levels to see where leverage turns toxic.
Where does your loan book sit? Click to diagnose.
> 3.0x = Safe
< 1.5x=Danger Zone
< 1.0x=Insolvency risk
Lenders are increasingly requiring PGs for "turnaround" financing. This converts unsecured corporate risk into personal catastrophe. Do not sign without a "Walk Away" number.