Last year, we published an article about the EURIBOR and its influence on interest rates. We established that EURIBOR and loan interest rates are highly correlated. The composite cost of borrowing reached a peak of 5.21% at the time. Since then, the ECB has lowered rates for the seventh time, bringing the average composite cost of borrowing down to approximately 3.93%.
In this article, we discuss a notable trend of Q1 2025, provide example of scenarios to analyse debt maturity structure and provide helpful tips in order to get hard-needed funding for your business.
Given the wide variety of financial products (e.g., straight loans, advances on current accounts) and lenders (including banks and other creditors), we will discuss debt in general terms. Variations may apply depending on the specific types of credit your business uses for financing.
Key-Takeaways
- Align short-term debt with short-term liquidity needs and long-term debt with long-term investments. This strategic matching helps maintain financial stability and minimises refinancing risks.
- Comparing qualitative and quantitative scenarios help making informed decisions, both sharing a perspective on the current market situation and comparing historical and competitor ratios.
- Even in times of scarce long-term financing, short-term financing can assist in overcoming shortages. Well considered use of existing funds and newly acquired funds minimise risks without losing control over your financial situation.
Debt Maturity Structure
Debt maturity refers to when a creditor expects full repayment of a loan. Maturities can be rolled over—often with renegotiated terms—extending the repayment date. The structure describes how you balance short-term versus long-term debt on your balance sheet.
In an ideal world, short-term obligations are covered by short-term borrowings and long-term investments (e.g., property or machinery) are funded with long-term debt. In practice, businesses sometimes face unexpected gaps and must bridge them however they can.
Beyond maturity itself, each debt type generally exhibits these characteristics:
| Short-Term Debt | Long-Term Debt | |
|---|---|---|
| Key Advantages |
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| Key Disadvantages |
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It’s the CFO’s role to blend both debt types—harnessing their benefits while mitigating their risks—to accelerate growth.
Notable Trend
In our research, we observed that creditors are increasingly securitising Selling off debt to Special Purpose Vehicles long-term debt—effectively removing it from their balance sheets. This suggests creditors are hesitant to hold long-dated loans on their books for the foreseeable future.
While it’s impossible to pinpoint the exact cause, we want to briefly address the topic of the inverted yield curve. In short, academic research has shown that when investors are uncertain about long-term yield prospects, short-term bond interest rates tend to rise above those of long-term bonds. Historical data also indicates that major recessions are often preceded by an inverted yield curve, earning it the ominous nickname “the inverse yield curve of impending doom.”
Although there was no inverted yield curve in Q1 2025, data shows that the spread between 2-year and 10-year bonds narrowed during the quarter. This coincided with news of the U.S. government reviewing tariffs, which likely has contributed to a decline in investor confidence.
What follows are three charts, based on our research of data from the National Bank of Belgium. In these charts we see the percentage change of approved loans to businesses, the amount of transactions taken place and the result of the ECB Bank Lending Survey up to Q1.
Note: Figure 3 displays net-percent changes from the Bank Lending Survey (BLS). Learn more about the BLS here.
According to the ECB’s Q4 2024 BLS report, credit terms were tightened for short-term loans (3%) and long-term loans (8%)—with demand for both types falling in the same quarter.
Meanwhile, an OECD study shows that by end-2022 European SMEs carried long-term debt equal to 83% of their outstanding borrowing, even though new long-term loan issuance fell to just 68% of previous levels.
Since many SMEs rely heavily on long-term financing, simulating scenarios will help businesses understand better the current state of their financials and make solid decisions.
Simulating Scenarios
Maintaining a healthy debt maturity structure isn’t an exact science—it can’t be captured in a single ratio. Rather, it’s a qualitative balancing act between potential investments and your company’s ability to take on debt without significantly increasing the risk of default.
The ability to model and evaluate different scenarios enables CFOs and executives to better understand trade-offs, prioritise investments, and decide which risks to mitigate or leverage. We separate the evaluation of the qualitative considerations and the quantitative considerations.
The Qualitative Scenario
Suppose a company is considering financing a €5 million investment. Two options are on the table:
- Short-term debt (2-year maturity)
- Long-term debt (10-year maturity)
The following analysis outlines key assumptions, advantages, disadvantages, and strategic implications of each option.
| Short-term debt | Long-term debt | |
|---|---|---|
| Amount | €5 million | €5 million |
| Maturity | 2 years | 10 years |
| Repayment structure | Full repayment at end of 2 years | Annual repayment over 10 years |
| Market outlook | Stable, rising rates expected | Uncertain, fixed rate secured |
| Cash flow position | Strong liquidity | Volatile, project-dependent |
| Refinancing risk | High (after 2 years) | Low (fixed terms for 10 years) |
| Total interest cost | €500k | €1,950k |
| Discounted interest cost | €481k | €1,747k |
| Short-term debt | Long-term debt | |
|---|---|---|
| Advantage | Lower interest rate and total cost | Long-term certainty, no refinancing risk |
| Advantage | Faster repayment reduces long-term debt exposure | Smoother cash flow management |
| Disadvantage | High refinancing risk if market conditions worsen | Higher cumulative interest cost |
| Disadvantage | Liquidity pressure from lump-sum repayment | Reduced financial flexibility in the long run |
| Risk | Exposure to rate increases during refinancing | Locked-in rate may be disadvantageous if market rates fall |
Scenario Evaluation:
- Short-term debt is attractive in stable, low-rate environments with predictable, strong cash flows.
- Long-term debt is preferable when market conditions are uncertain and cash flow is less predictable, offering long-term stability.
If your company has stable cash flows and can manage the refinancing risk, short-term debt offers a cheaper and more flexible option. On the other hand, if your priority is to lock in predictable terms and avoid the risk of future rate hikes, long-term debt—while more expensive—may offer greater peace of mind.
CFOrent Insight: The Fall of Silicon Valley Bank
“To highlight the importance of maintaining a healthy debt maturity structure, the fall of Silicon Valley Bank (SVB) presents an interesting case study,” says Louise, CFOrent associate. “While the collapse can be attributed to poor strategic decisions—such as insufficient diversification of assets and a niche customer base—a proper review of the debt maturity structure could have revealed problems well before they surfaced.”
“In essence, during 2020-2021, when VC funding was abundant, the bank received large deposits from its primary customer base: startups in Silicon Valley. SVB couldn’t lend out the funds quickly enough and purchased a significant volume of long-term bonds at low interest rates. When VC funding dried up in 2022-2023 and interest rates began to rise, startups started withdrawing cash to cover their burn. SVB was forced to sell long-term bonds at a loss to meet the sudden demand for liquidity. This ultimately triggered a run on the bank, earning it the label ‘the biggest bank run in U.S. history.’ The bank collapsed in less than 48 hours.”
The SVB example illustrates the risk from the creditor’s perspective—specifically, that long-term debt can become disadvantageous when market interest rates rise and the locked-in rates no longer reflect current conditions. Nonetheless, it underscores the importance of conducting scenario analysis across a range of potential outcomes.
Ultimately, the additional cost of long-term debt should be evaluated in relation to the expected returns on investment. Strategic debt management is about more than minimising costs—it’s about aligning financial structure with your growth ambitions and risk tolerance.
The Quantitative Scenario
In this scenario, the aim is to visualise the current state of the financials based on several ratios that have a debt component, such as the current ratio, quick ratio, long-term debt ratio and asset coverage ratio.
While assessing these quantitative ratios, it’s important to (a) benchmark them against your company’s historical values and (b) compare them to industry competitors. The quantitative scenario serves as an indicator of potential disruptions in a business’s financial structure.
Communication about these ratios to lenders and investors is crucial when securing funds. It’s important that they understand the history of these values and what the underlying indicators are.
Survive with Short-term Debt
So how can a business survive in times where long-term debt is difficult to obtain?
- Cyclical Renewal: a strong relationship with your creditor and maintaining a solid cash flow help you set up a cyclical renewal of short-term loans that can be periodically renewed. But don’t wait until the last minute and start preparing refinancing 3-6 months in advance.
- Leverage Trade Credit: Negotiate longer payment terms with suppliers to decrease your Cash Conversion Cycle, effectively lowering opportunity costs of working capital.
- Revenue-based Financing: suitable for businesses with reccuring revenue models. By exchanging a percentage of future revenue, short-term shortages can be funded. And depending on your negotiating skills at very low interest, if not, none.
- Milestone-based lending: suitable for startups or businesses with promising futures, milestone-based lending allows for negotiating multiple short-term fundings, based on achieving milestones. It’s focused on performance but when the milestones are achieved, no negotiation is needed for the next funding.
- Use funding for its intended purpose: short-term lending should be used for short-term needs. Equity or long-term lending should be used for long-term investments. This practice avoids unnecessary equity dilution if short-term cash needs arise.
Conclusion
Keeping an eye on the debt maturity structure of your business’ financing is a focus-oriented exercise. It obligates management to carefully assess the current state of finance and leverage benefits of one type against draw-backs from others. Neglecting to review debt maturity structure can spell doom and snowball quickly into a disaster, just as what happened with Silicon Valley Bank.
By monitoring lending trends, applying structured scenario analysis and maintaining strong relations with creditors, CFOs and business leaders can make better-informed financing choices and elevate chances to acquire necessary funding. Rather than fearing debt, startups and SMEs should treat it as a tool—one that, when managed wisely, amplifies both agility and ambition.
Ultimately, the goal isn’t just to access capital, but to use it strategically—aligning maturity structures with your business model, risk appetite, and growth plans. Our associates have helped many startups and scaleups navigate this maze and help them balance funding needs. We are excited to assist your business as well, contact us today!
