Firms turn to balance-sheet financing as cash hunt intensifies

The latest Business Expectations Survey by the Bank of Botswana (BoB) indicates that the shift is reflected in the growing number of businesses relying on assets and retained earnings to fund operations and expansion plans, rather than taking on new external debt. Central bank researchers found that the number of firms preferring to use their own cash, in the form of retained earnings, grew quarter-on-quarter this year, reflecting worries about rising interest rates.

The researchers noted a decline in the number of firms preferring debt or loans to finance operations as a result of what they perceived to be the growing cost of cash. "Firms continued to prioritise financing their business operations primarily from retained earnings, consistent with the findings of the previous survey. This was followed by loans and equity," researchers noted. Between the second and third quarter, firms preferring balance sheet financing grew from 47% to 55% whilst the percentage share of firms preferring loans shrank from 37% to 31%, according to data from the central bank.