Most Business Owners Use Personal Finances To Support Their Business

- March 17, 2016 2 MIN READ

According to the latest SME Growth Index by Scottish Pacific, the number of small business owners using their own finances to support business growth is very high (65.4 per cent), with 17 per cent regularly drawing on personal finances, and 48.4 per cent occasionally using their own finances. Only 10 per cent of small business owners had never used non-business sources to settle their business expenses.

Scottish Pacific CEO Peter Langham said these results were concerning, particularly for those using credit cards with high interest rates. “How SMEs are funded has a significant bearing on operations, from how well they can manage cash flow to the pace at which they expand. It’s crucial to get it right and not think too short term. Personal finance may appeal from a convenience, speed and accessibility perspective – the downside is that higher than necessary funding costs cut directly into margin, and personal financing can impact on lifestyle and leave owners open to family conflict which can destabilise the business.”

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“I’d strongly encourage SMEs, whether product or service orientated businesses, to seek smarter funding options. Look beyond the banks as this is an active, innovative space trying to offer a better alternative,” Langham said.

For those seeking to fund growth, the availability of unsecured credit – where there’s no requirement to lend against real estate – is the most important factor. In the past year, there has been a 20 per cent increase in non-bank lending demand. To highlight the strong demand for more flexible lending terms, a huge 67.9 per cent of SMEs are willing to pay a higher rate to obtain finance if it means they don’t need to provide real estate security.

When it comes to growth, 58 per cent of SMEs are in positive growth mode, with an average revenue growth forecast of 5.2 per cent. Seventy per cent of SMEs believe their business to be stable or in a growth phase, 11.3 per cent in startup phase and 18.1 per cent to be consolidating or contracting. Willingness to merge with another business has doubled since the first round of the Index in September 2014, from six to 11.3 per cent of SMEs. As for what drives that growth, 35.2 per cent of respondents say they are “simply following their nose.”

What do you think? What drives growth in your business? Share your comments here!

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