Wraith Carter gavin1

Thousands of UK small business owners are raiding their personal savings to keep their companies afloat, according to new research.

Hitachi Capital Business Finance spoke to more than 1,200 SME executives and found that around 39% were using personal cash in the business.

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, it said.

In addition, the number of start-ups that have also turned to family members for a loan has increased from 10% to 15% over the past 18 months.

After family, overdraft was the next most popular option, with finance options such as invoice finance, finance lease, hire purchase and operating lease, used by 5% or fewer respondents.

Gavin Wraith-Carter, managing director at Hitachi Capital Business Finance, said: “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 they are not tuning to them for financial help.

“My concern is there may be a widely held view by small businesses that high street lenders will just say ‘no’.”

Wraith-Carter also said the reliance on personal finance wasn’t down to a lack of choice when it came to alternative sources of funding and that raising awareness among SMEs was important.

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

 Start up (trading less than 5 years)Small business average 
Own money/ cash 39%  28%
Money from family members (i.e. either gifts or loan) 15% 9%
Overdraft 11% 15%
Government support (i.e. grants, finance loans, business support) 5% 3%
Standard business bank loan 5% 8%
Invoice finance 4% 4%
Finance lease 3% 4%
Peer to peer lending 3% 3%
Hire purchase 3% 3%
Borrowing from the business 3% 2%
Operating lease 2% 2%

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