Jump in number of SMEs self-funding over first six months of 2014
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 chief executive officer David Postings said the 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; 44% of the businesses surveyed said they were either using their own savings or borrowing from friends or family to finance their business. This has risen significantly from the 26% who were relying on this form of funding only six months ago.
David commented: “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.
“However, 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.
“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 which mean that a reliance on personal savings isn’t necessary or indeed desirable for the longer-term health of businesses.
“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 to tackle this head-on and help UK SMEs see that there are, in many cases, more flexible finance options that exist.”
