Are SMEs too Reliant on Personal Financing?

Factors such as heavy taxes, late payments and cashflow issues are forcing SMEs in the UK to rely on personal financing such as savings, bank overdrafts and loans from friends or family. This was the finding from a recent survey carried out by Bibby Financial Services.

The research involved questioning more than 1,000 small business owners with an average turnover of £1.2 million about how they finance their enterprises.

While 23% admitted to being too heavily reliant on bank overdrafts, 14% revealed that they had resorted to asking loved ones for personal loans.

Credit cards, bank loans and crowdfunding were also mentioned as ways to raise business finance, but only a small percentage appeared to be turning to these options.

More than a quarter of those surveyed said they had never used any external financing – suggesting a tendency to seek support closer to home rather than applying for business loans and suchlike.

More information on small business finance needed

David Postings, UK Chief Executive of Bibby Financial Services, said: “Many small businesses are over-reliant on unsustainable or restrictive sources of funding, such as personal loans and overdrafts.

“These sources of finance provide limited flexibility and cannot support business growth in the long-term.

Mr Postings believes that more needs to be done to educate small businesses on the spectrum of financial support on the market.

He added: “The government should prioritise making businesses aware of all the funding options available to them, rather than becoming further indebted to friends and family.”

A lack of trust in banks and concerns about being declined were some of the reasons cited for not seeking external funding.

What are your views on this? Do you prefer accessing business finance through personal means or external funding? Tweet us @TheInsuranceOct and let us know!