Brits seek financial support from friends and family over banks

National research reveals British entrepreneurs held back by diminishing lines of credit and an inability to reach out to the Bank of Mum and Dad.

Two thirds of respondents reveal that their friends and family do not have the financial support available

Two thirds of respondents reveal that their friends and family do not have the financial support available

Over a third (35 per cent) of entrepreneurial Britain said they would resort to their own personal savings for financial support when starting or growing a business, new research commissioned by Crowdfinders reveals.

The second most popular option in the nationally representative survey of over 2,000 UK adults was banks and institutions (28 per cent). Whereas, 15 per cent – the equivalent of almost 8 million people across the UK – stated they would seek financial support from friends and family.

Worryingly, however, almost two thirds (64 per cent) of business-minded Britain said those close to them do not have the means to support their business venture.

The research revealed that huge numbers of Britons are in the dark about the funding options available to them, with a particularly worrying 52 per cent of our next generation of entrepreneurs (those aged 18-34) saying they would not know where to turn for financial support if they were to start or grow a business.

Coupled with the fact that 64 per cent of UK adults cannot rely on financial support from friends and family, these are troubling findings for the future performance of the nation’s economy, which is heavily reliant on a growing collection of small and medium sized businesses.

Bank of mum and dad

When asked “if you were to start or grow a business, where are you most likely to turn for the finance you need?” entrepreneurial Britain report personal savings (35 per cent), banks and institutions (28 per cent) and friends and family (15 per cent) as the first port of call.

Alternative options for quick cash include the sale of other assets (cars, collectables, luxury items, etc.) (11 per cent), existing job, current business or professional network (11 per cent), re-mortgaged property (9 per cent) and crowdfunding platforms (8 per cent).

Bank finance sits right at the bottom of the table with P2P lending platforms (5 per cent), venture capitalist and angel investment (5 per cent) and private equity investment (4 per cent) the last choice for many.

However, when asked about the funding avenues realistically available to them, the research reveals that 64 per cent do not have friends and family with the finances to support them if they were to start or grow a business.

Nearly two thirds (63 per cent) do not feel they could even ask friends and family for financial backing and nearly half (45 per cent) not knowing where to turn for funding.

Financial shortfall

Analysis by Funding Options has revealed that since 2011 banks have withdrawn £5.7 million a day in small business overdrafts alone, thereby cutting available credit by £8.4 billion at an estimated cost to the economy of £2.9 billion.

The financial shortfall is having a profound impact on Britain’s SMEs, with RSA figures showing that over half of UK businesses are failing within the first five years as a result.

This issue affecting UK SMEs has come into the spotlight recently with the announcement of the Patient Capital Review in Philip Hammond’s first Autumn Statement – the review seeks to identify the causes of the funding gap by partnering the insights of the Treasury and leading figures in the private equity industry.

Crowdfinders has launched a new pre-crowd investment platform to address this issue, democratise SME investment and give entrepreneurs the initial support they require to secure all-important growth finance through a crowdfunding raise.

To raise further awareness around the alternative finance options available to business owners nationwide, the platform marks the second stage of Crowdfinders’ £100 million scale-up funding initiative Race to Scale.

By connecting entrepreneurs to investors as part of a £100 million funding drive launched to support British scale-ups, Crowdfinders has a plan to tackle the problem of declining bank lending and financial support.

Luke Davis, co-founder of Crowdfinders, thinks that there has been a long-standing issue in the world of business that typically only entrepreneurs with deep pockets or wealthy friends and family can access the capital they need to start or scale-up their business.

Davis adds, ‘The alternative finance revolution was meant to democratise access to funding; however, more needs to be done to connect entrepreneurs with potential investors so they no longer have to rely on personal savings or the bank of mum and dad.’

Further reading on family lending

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