Bootstrapped Small Businesses More Profitable Than Funded Counterparts

Non-funded small enterprises are growing at the same rate as financed firms as overall business performance hits record breaking high

Bootstrapped Small Businesses More Profitable Than Funded Counterparts

Small and medium businesses who have not used or applied for external finance – ‘permanent non-borrowers’ (PNBs) – are performing at the same rate as their counterparts who have received investment, according to the latest BDRC SME Finance Monitor.

The report found that bootstrapped small firms are more profitable than their funded counterparts (81% compared to 76%) and have achieved similar levels of growth in the last 12 months.

However, the research did reveal that PNBs were much less ambitious. Only 37% of non-funded firms are planning to grow their company over the next year and only 29% were found to have introduced new innovations in their business compared to 49% and 41% of funded companies respectively.

Overall, small businesses are performing very well. The majority (80%) of companies said they generated profit in the second half of 2015 – the highest level seen to date by the monitor.

The report, which featured over 5,000 small and medium firms, also found that companies are more confident about the current economic climate as only 14% cited it as a barrier to development – a considerable improvement on 37% in 2012.

Shiona Davies, director at BDRC Continental, said:

“We have continued to see higher application success rates and general business optimism. Meanwhile, permanent non-borrowers are masking signs of increasing use of and demand for finance amongst the remaining 51% of small businesses.

“‘Permanent non-borrowers’ are an interesting group – our new analysis of this group shows them to be profitable, hold credit balances and almost as likely to have grown as their peers, yet they are less likely to be international, to have innovated or to plan to grow in the coming year. They appear to be doing well, but the question is, could they be doing even better through using external finance?”

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