18 per cent rise in firms relying on personal savings or help from friends and family
Funder urges industry to do more to explain funding options open to SMEs
The number of SMEs relying on personal savings to fund their businesses has leapt in the six months to May, according to a study of 1,000 SMEs conducted by Bibby Financial Services (BFS). Bibby Financial Services Chief Executive Officer, David Postings said results were worrying and cautioned businesses to consider the viability of self-funding over time.
Self-funding is currently the most popular form of funding among SMEs, with nearly half (44 per cent) of businesses surveyed using either their own savings, or borrowing from friends or family, to finance their business. This has risen significantly from the 26 per cent who were relying on this form of funding only six months ago.
David Postings said: “News of economic recovery in the UK following three quarters of growth has clearly had an impact on business optimism and the appeal of drawing on funds from personal savings or from family members to SMEs can be seen.
“Such sources will likely be quick and easy to access, and may appear cheaper than most conventional forms of finance.
“But these casual arrangements bring with them inherent problems – aside from the risks of linking business and personal interests too closely, self-funding is unsustainable over time. While it might help the smallest of businesses in the short-term, self-financing is unlikely to be enough to help fund longer-term growth, even for those with relatively modest ambitions.”
Postings continued: “This jump in the number of SMEs turning to self-funding over the last six months is worrying. As an industry we need to do more to explain to SMEs that there are a multitude of funding options available today that means a reliance on personal savings isn’t necessary, or indeed desirable for their business’s longer-term health.
“SMEs we speak to tell us that they still feel the banks are unwilling to lend in many cases, which goes some way to explaining these results. But at the same time, there is clearly a lack of awareness of the alternatives that are widely available today. It therefore falls to other funders – Bibby Financial Services included – to tackle this head on and help UK SMEs see that there are in many cases more flexible finance options that exist.”
i4DZINE, a UK-based lighting and furniture design start-up whose products are stocked in stores including John Lewis, has self-funded in the past. Paul Carter, company director, said: “When we initially set up the business, we were drawing from personal savings which was just about adequate for our first year trading.
“However we then experienced a sudden unexpected explosion in orders, with some of our selected products over-selling by approximately ten times the amount of the original forecast provided by our customer. This meant relying on our own savings just wasn’t realistic.
“By using an external funding provider, we have a sustainable form of finance in place that will grow in line with the growth of our business - a much more comfortable arrangement.”
This article appeared in the Daily Telegraph, 24th June, 2014