When Growth Loans Backfire: Knowing When to Say No

Expert Insight by Stephanie Heller
Managing Partner, Bootstrap Europe | €1B+ Invested in 250+ Companies

Stephanie Heller is Managing Partner and Co-Founder of Bootstrap Europe, a leading growth debt fund that has invested over €1 billion across 250+ technology companies in 12 European jurisdictions.

Before co-founding Bootstrap Europe, Stephanie founded and exited the award-winning fintech startup Fractal Labs, and managed $350M in growth equity investments through The Real Economy Effect (TREE). She brings deep expertise in growth financing, having worked with Deutsche Bank’s M&A team and various technology companies across Europe.

Stephanie holds a Finance degree from HEC Business School Paris and executive business law certification from Universität St Gallen. She is fluent in French, English, and German.

In the startup ecosystem, the promise of fast growth can make debt financing—especially growth loans—seem irresistible. When used wisely, these loans can be a catalyst for scaling. But there are scenarios where taking on such debt could do more harm than good.

Drawing from experience in venture debt, here are six moments when you might want to step back and reconsider:

1. Your revenue model isn’t yet proven
If your business is still figuring out how to generate consistent income, debt is a dangerous bet. Growth loans work best when there’s reliable cash flow to meet repayments. Without that, you risk putting unnecessary strain on the business, leading to financial distress—or worse, default.

2. You’re burning cash too quickly
When the monthly burn rate is high and unsustainable, adding debt will only deepen the hole. Growth loans are designed to accelerate expansion, not to plug operating losses. A high burn rate often points to underlying business model issues that should be fixed before borrowing.

3. The growth plan is fuzzy
Debt without a clear, actionable growth roadmap is like sailing without a compass. If you can’t map out how the funds will be deployed and how they’ll generate returns, the loan could quickly become a liability instead of an asset.

4. The loan terms don’t fit your reality
From interest rates to repayment schedules, loan conditions vary widely. If the terms are too aggressive or the cost of capital is too steep, the financing could become a burden rather than a boost. Make sure repayment timelines and interest align with your revenue cycles.

5. Equity might serve you better
For companies with strong growth potential but unpredictable cash flow, equity financing can sometimes be a smarter route. While it dilutes ownership, it also shares the risk and removes the immediate repayment pressure that comes with debt.

6. You risk overleveraging
Too much debt reduces flexibility and leaves your company more exposed to market shifts. Keeping your debt-to-equity ratio healthy ensures you can adapt to changing conditions without being pinned down by repayment obligations.

Growth loans can be powerful tools for scaling—but only in the right context. Founders should weigh the timing, the health of their business, and the loan’s structure before committing. A well-timed loan can fuel momentum; the wrong one can stall it completely.