Britain’s small businesses “too reliant” on savings and overdrafts

More than a quarter of small and medium-sized firms cite unreliable cashflow as their biggest threat

The UK’s small and medium-sized enterprises are primarily using bank overdrafts, personal savings and loans from friends or family to finance their businesses, according to research from Bibby Financial Services (BFS).

More than 1,000 small businesses with an average turnover of £1.2m took part in the survey, which found that the majority (23%) are “too heavily reliant” on bank overdrafts, while 14% are dependent on family loans or savings.

Bank loans were the third most commonly used source of finance (13%), followed by invoice finance (7%), personal finance such as credit cards (7%), and finally crowdfunding at just 1%. Almost a quarter of respondents said they had not used any external finance.

In a separate study of 1,000 small business owners, 17% cited unreliable cashflow as the biggest threat to their business, followed by  taxes eroding profits (13.9%), and customers delaying payment (10.9%).

On the reasons for not having sought external finance, 15% of business owners cited concerns about being declined while 14% simply stated that they didn’t want to go to a bank.

David Postings, UK chief executive of Bibby Financial Services, said: “Many small businesses are over-reliant on unsustainable or restrictive sources of funding, such as personal loans and overdrafts. These sources of finance offer limited flexibility and cannot support a business’s growth in the long-term.

“The government should prioritise making businesses aware of all the funding options available to them, rather than becoming further indebted to friends and family.”

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