Personal Finance Props up SMEs
Cash-strapped small business owners are turning to friends, family and personal credit cards to help keep their businesses afloat after failing to access bank finance, credit reference agency Graydon UK has revealed.
Graydon’s survey of 750 small firms during the last six months of 2009 found that inhospitable banking conditions have forced 28% of business owners to turn to relations and their social circle to secure funding. It also revealed that a further 8% of business owners have used personal credit cards.
Forum of Private Business spokesman, Phil McCabe, said it can be dangerous for business owners to use personal finances, but that it is often their only option.
“Turning to friends and family can mean the terms are often more favourable, but there are the emotional implications.”
McCabe added that the upturn in the economy will help return lending to small businesses to more sustainable levels.
“We are speaking to the banks’ senior risk assessors and the Government to determine how we can restore lending as soon as possible.”
“On one hand it is a question of banks being prepared to assess risk more accurately, on an individual and regional basis, and on the other hand business owners must help themselves by providing thorough financial information to prospective lenders.”
According to Graydon UK’s managing director, Martin Williams, lending conditions are likely to remain unfavourable for at least the first quarter of 2010.
“But small firms should remember that the refusal of a loan need not be the final decision. If refused credit, businesses must demand answers from their bank as to why they failed to secure funding, as this will open the door for them to return with a revised business plan and more detailed financial information.”