Personal savings keeping two in five UK start-ups in business

LLB Reporter

Source: Photoshot

New research shows

Two in five (39%) small business start-ups say they have raided personal savings to keep their business afloat in the past year, according to new research from Hitachi Capital Business Finance.

As the start of 2018 marks a decade since the banking crisis and a prolonged period of cautious high street lending to small businesses, the new research suggests many UK small businesses are not turning to high street lenders to support their business – fuelled perhaps by the broadening issues around trust. Start-ups (businesses that are less than 5 years old) are almost twice as likely to use personal money as businesses that have been trading for 10 years or more (22%). In addition, the number of start-ups that have also turned to family members for a loan has increased from 10 per cent to 15 per cent over the last 18 months. 

The findings suggest that even with the plethora of alternative finance options readily available today, many small business owners are not looking beyond their high street lender at the wide range of finance options available to them. 

The reliance on personal finance over specialist finance is put into sharp focus given start-up businesses have ambitious plans for growth and expansion in the next three months. Compared to older businesses (that have been trading for a decade or more), start-ups are four times more likely to predict significant business growth in the next three months (14% Vs. 3%). Furthermore, to power this growth they are also more likely to be looking to expand into new markets (21% Vs. 16%); to invest in new equipment (17% Vs. 9%); to hire staff (16% Vs. 13%), and to move to a larger location (9% Vs. 3%). 

Forms of finance used by small businesses over the last 12 months.

 Start up (trading less than 5 years)Small business average
Own money/ cash39%28%
Money from family members  (i.e. either gifts or loan)15%9%
Government support (i.e. grants, finance loans, business support)5%3%
Standard business bank loan5%8%
Invoice finance4%4%
Finance lease3%4%
Peer to peer lending3%3%
Hire purchase3%3%
Borrowing from the business3%2%
Operating lease2%2%

In addition, owners of start-up businesses are far more likely to say that worrying about cash flow management keeps them awake at night (29 per cent compared to 19 per cent of owners of older businesses). This is probably explained by the combination of having bold expansion plans but not seeking external help on finding the right kind of funding.

Gavin Wraith-Carter, Managing Director at Hitachi Capital Business Finance commented: “It seems hard to believe that the banking crisis was a decade ago but the knock on effect of high street lenders being very cautious with lending to SMEs shows itself in this new study. The issue is not one of small businesses being turned down for finance, it is the fact too many start-ups do not trust institutions to, therefore are not tuning to them for financial help. Ten years on, my concern is there may be a widely held view by small businesses that high street lenders will just say ‘no’.”

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