Business owners are draining personal savings to help run their firms

Feb 14 2012

More business owners are resorting to drawing on their own personal savings to keep their businesses going compared to this time last year, according to new research by Bibby Financial Services.

In a study, as part of the company’s quarterly Business Factors Index 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 (66 per cent) 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, says: “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.

“Invoice finance is a flexible funding solution which helps to bridge the cash flow gap between raising an invoice and getting paid, giving businesses an immediate cash-injection and then an ongoing supply of working capital against the value of outstanding customer invoices as they are raised.

“Using an invoice finance facility, businesses also benefit from the provider’s credit management and collections service, saving them valuable time, as the provider will chase and collect outstanding invoice payments on the firm’s behalf.”

“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.”

If you would like more information in relation to Invoice Finance please call 0151 244 5444 and ask for Mr Richard Appleby or email us at Richard@ccdr.eu

Please note: The content contained within this blog is the property of Business Credit Management UK (www.creditman.co.uk),a copy of the full article can be found by clicking HERE