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One in five small businesses turn to friends and family for finance

Entrepreneurs forced to rely on loved ones as bank lending stalemate continues

More than one in five small businesses have turned to friends and family for loans, after struggling to secure funding from the high street banks.

According to Bibby Financial Services, the number of small businesses applying for external funding fell to 31% in the last 12 months – with 29% failing to secure bank finance or feeling deterred from applying because they expected to be rejected.

Of the 1000 small business owners polled, 14% said they had received less funding than they required to fulfil their business plan – and 20% turned to loved ones for additional financial support.

Earlier this year, the Bank of England reported that in the three months to May lending by banks and building societies fell by approximately £3bn, with the Organisation for Economic Co-operation and Development planning to launch a report into the issue.

Bibby’s product director, Andrew Dixon said: “Businesses reliance on the banks for finance has reached crisis point, as they are finding their ability to survive and grow severely restricted by a lack of funding.

“Small and medium-sized businesses need more and faster support from traditional and alternative lenders.

“The government’s ‘Funding for Lending’ scheme will hopefully lead to an increase in bank lending to small businesses, but ultimately it fails to address the issue that small businesses have become too reliant on the banks.”

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