Third of Small Businesses Turn to Personal Funds in Favour of External Finance

Increasing number of small business owners are worried about cashflow and are opting to use overdrafts and family money

Third of Small Businesses Turn to Personal Funds in Favour of External Finance

One in three small businesses are “digging into their own pockets” and rejecting external finance to grow their business, research from Hitachi Capital has indicated.

The study of 1,000 small business owners found that, while 30% of businesses have used their own savings to fund growth in the last 12 months, 16% have opted to use overdrafts, and 7% have taken money from family and friends.

In contrast, only 21% of small and medium-sized business owners have used external finance solutions such as loans, peer-to-peer lending, and invoice finance in the last year, despite the fact that cashflow was named as the biggest worry by those businesses surveyed.

The research also highlighted some alarming findings for growth prospects among small business owners. Just 6% said they expect to experience significant growth over the next 12 months while 60% said they would stay at their current size or even scale down.

April, July and October were found to be the months when business owners were most in need of financial help and had low cash reserves – April being the beginning of the new tax year, July a popular holiday season for staff, and October linking to sales pressures for Black Friday and preparations for Christmas.

Gavin Wraith-Carter, Hitachi Capital Business Finance managing director, said it was critical that UK small and medium enterprises can “efficiently manage their business”:

“At a time when many banks are withdrawing overdrafts and cutting back on business loans, business owners need to consider the full range of options available to them. Innovative finance solutions, such as invoice finance, business loans and finance leasing, are cost effective, simple and straightforward, and can help prevent sleepless nights for small business owners.”

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