A third of SME owners use personal funds over professional finance solutions

Around one in three (30%) SME owners resorts to personal funds rather than professional lending and other financing options, according to a new study.

The research, by Hitachi Capital UK, found that only around a fifth (21%) of small businesses in the UK had accessed professional financial support over the past 12 months. This included traditional business loans as well as alternative finance options such as peer-to-peer (P2P) lending, invoice finance and finance leasing.

An earlier release from the British Bankers Association (BBA) revealed a slowdown in applications for funding from SMEs across 2015. The number of businesses looking for bank loans fell by 13% compared to 2014 and those applying for overdrafts fell by 9%.

One factor could have been connected to a corresponding increase in cash deposits. The level of cash held by SMEs in current and deposit accounts totalled £164billion at the end of 2015, representing an annual growth of 7%.

Some smaller businesses could have used these funds instead of seeking bank loans or alternative finance options but many others have turned to personal resources. Should a business find itself in difficulty, this place can pressure on both the individual and their business. As well as the 30% dipping into their own pockets, 16% used overdrafts and 7% turned to their own families when additional cash was needed.

According to the Hitachi report, cash flow was the biggest worry for SMEs. Almost a third (30%) of small business owners said they were kept awake at night worrying about this issue.

Cash flow problems can stem from a number of different contributory sources but late payments from customers can be particularly problematic. According to the Bibby SME Confidence Tracker for Q1 2016, 44% of SMEs are forced to wait for longer than 30 days for payments.

This can have a knock-on effect further along the supply chain. The top reason given to SMEs for late payments was that the client was experiencing cash-flow problems due to waiting for payment from its own customers.

By Phil Smith

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