A survey of 450 business owners suggests that two thirds of small enterprises did not even attempt to secure finance from external sources last year, instead relying on their own savings to get through tough times.
The report, published by invoice finance specialists Bibby Financial Services, shows that the number of SME owners who did not seek outside sources of finance increased by 11% on the previous year’s figure.
Another recent survey, by the FSB, found that a mere 35% of its members had used their overdraft facilities during 2011, which marked a drop of over 40% of the previous year.
Bank lending hard to secure for many small firms
Bank loans, overdrafts, and other types of lending have been harder to secure ever since the Northern Rock fiasco marked the start of the credit crunch back in 2008.
The major banks have stubbornly refused to increase lending to levels which would genuinely help small businesses to thrive again – only this week, the five major UK banks missed their ‘Project Merlin‘ lending targets.
HSBC, Lloyds, RBS, Barclays and Santander had agreed with the Government that they would lend a minimum of £76 to small firms during the previous 12 month period, but they missed the target by £1.1bn.
SMEs cannot rely on personal funding indefinitely
According to the Bibby survey, many SME owners are relying on their personal savings to fund business growth, as they are either unwilling to borrow, or banks are unwilling to lend to them
Gary David Smith of Prism Total IT Solutions commented:
"It is extremely difficult to gain adequate finance from the banks to meet growth targets.
"Many SME’s are not growing as they should do because they do not have capacity on demand. Using the personal savings of the business owner as working capital is always going to be an unsustainable strategy – except in very exceptional circumstances," said Mr Smith whose company supplies complete IT support to over 1000 SME’s nationwide.
A banking industry spokesman told the report’s authors that personal finances will not be able to sustain small firms indefinitely:
"Personal financial resources will not be able to sustain growth in the SME sector which is where government expects the majority of employment growth to come from."
"Even profitable businesses with assets are finding it tough to sustain growth – the situation looks bleak for the future," he said.
Article originally published on bytestart.co.uk.