Small business owners rely on personal finances over loans

SME decision makers' personal finances are more greatly affected by their business than those in larger companies.

One in four (24 per cent) decision makers in small businesses with a turnover of £250,000 or less have used funds from a personal finances to grow their business over the last two years, while only 4 per cent use a business loan, according to research by Opus Energy.

In contrast, no decision makers in companies with a turnover between £2million and £2,999,999 have relied on a personal finances to grow their business, but 30 per cent use a business loan from a bank.

The research, which investigated the confidence and performance of UK SMEs, also highlights that in the last two years, more than half (54 per cent) of decision makers in businesses with a turnover between £250,000 and £499,999 had gone at least one month without a paycheque, compared with just a fifth (20 per cent) of those in businesses with a turnover between £3million and £5million.

Andy Nash, operations director at Opus Energy, comments, ‘When running a smaller business, it’s difficult for decision makers to not be personally affected by issues such as finance, especially if the company is still in its early stages.

‘Our research found that 61 per cent of SME decision makers expect the income of their business to increase in the next two years and are predicting growth of up to 20 per cent. However, when the future performance of a smaller company might not be as certain as that of a larger competitor, decision makers can be reluctant to lock themselves into high-interest initiatives such as a bank loan.

‘As such, it’s not surprising to see so many going without a regular monthly wage or relying on personal finances to prop the business up and fund growth.’

The research also finds that decision makers in smaller SMEs don’t just take their work home with them in a financial sense. When seeking advice, 25 per cent of decision makers in businesses with a turnover of £250,000 or less said that they turn to a partner or family member, while only 6 per cent rely on professional consultants.

Meanwhile, only 10 per cent of those in companies with a turnover between £2million and £2,999,999 say they rely on family or a partner and 40 per cent instead speak to a consultant.

Andy Nash continues, ‘It’s important to remember that while larger companies might be in a position of greater financial strength, they are less adaptable to the ever-changing business climate than their smaller competitors and need to ensure that key decisions are backed up by a greater degree of certainty.

‘Having more employees, products and clients to be mindful of, it therefore makes a great deal of sense for larger businesses to seek professional assistance more readily than smaller SMEs in difficult times.’

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