In a study taken during Q4 of 2011, using personal savings to raise the finance needed for running their firms became the number one option for small and medium-sized business owners in the UK, ahead of bank overdrafts, loans and credit cards.
Only four per cent of firms stated they had applied for funding through Government initiatives despite HSBC and Santander this week stating they had met Project Merlin objectives for 2011.
Alongside this finding, the study also revealed that two thirds of UK business owners have not even applied for external funding over the past 12 months – an increase of 11 per cent year-on-year.
The latest Bank of England Trend in Lending survey highlights that the increased cost of lending to businesses has also had an effect on decreasing levels of SME lending by the banks in the last quarter of 2011.
Edward Winterton, executive director at Bibby Financial Services, who commissioned the quarterly survey, said: “The lack of awareness among small and medium-sized business owners of the full range of available funding options is their biggest barrier for effectively accessing the finance they need to run and grow their firms.
We feel there is an urgent need to educate business owners in the UK, from start-ups to more established businesses about their funding options and how they can access the facilities most appropriate for their business’ needs.
“At the same time, it is also important that government agencies understand how invoice finance works and how appropriate it is for SMEs looking for funding to help them grow. It should be part of the portfolio of finance solutions promoted to businesses by the different government agencies. We would like to see the Government providing a platform for the industry to promote the benefits to businesses of accessing funding through invoice finance.
“If businesses continue to tap into their personal savings, which is a worrying trend as this source is not sustainable or designed to help business growth, then we could see insolvency figures increase further throughout the year.”