Is ignorance of finance options holding SMEs back?

A recent survey into the finance choices of SMEs has revealed shocking data over where most small businesses get their funding from, claiming it is preventing them from capitalising on a lucrative future.


In the survey conducted by Bibby Financial Services, the finance options of 1,000 small to medium enterprises (SMEs) was investigated with a shocking number revealing that it is personal savings and charitable handouts from friends and relatives which makes up a large proportion of their funding.


Overall, around one quarter of SMEs admitted to using this type of funding with the Chief Executive of Bibby Financial Services, David Postings, claiming that this could be holding them back.


Postings said that the reliance on personal cash could affect future financial decisions of SMEs, leaving them unable to make the most of opportunities presented to them.


With limited funds at their disposable and a lack of knowledge on other forms of finance, many SMEs could be wasting the potentially lucrative situation currently available to them as the first signs of economic recovery come into view.


This could put them in a weaker position going into 2014 and leave them with big challenges to overcome in the months and years ahead.


“Businesses with unsustainable or limited sources of finance in place will find it challenging in the month and years to come if they cannot take advantage of the gradually improving trading conditions in the UK”, said Postings.


One size fits all


This essentially means that small business owners could be doing themselves a disservice by failing to acknowledge the diverse finance options which they can use to their advantage, instead adopting a ‘one size fits all’ approach whereby they rely primarily on one source of income.


The results of the survey showed that 20% of the SMEs interviewed relied solely on a bank loan for funding with an equal number dipping into their overdraft instead.


In total, this means that almost half of SMEs were using just one source of funding – putting them in a precarious financial position.


If this ignorance surrounding business finance is not addressed then SMEs could find themselves facing new challenges and increased pressures rather than reaping the benefits of the first shoots of economic recovery currently coming into bloom.


By Phil Smith


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