The average small business relies on a single source of funding 

Most small and medium-sized enterprises use just one source of finance to start up, research finds.

A study of 1,000 businesses conducted by the University of Surrey shows that the majority of SME owners (58 per cent) use just one funding means to initiate their business, while fewer (42 per cent) rely on only one source of finance to sustain their business.

Study director Professor David Gray says, ‘We found that SMEs mostly borrow from family or friends or reinvest retained profits, but these sources are often inadequate for the growth needs of businesses.

‘Our research shows that banks come a poor third in terms of finance sources, which is disappointing given that the UK is considered to be a market economy.’

Gray adds that SMEs need ‘patient’ capital, finance that is there for the longer term, which is the ‘only way to stimulate and sustain high-growth businesses’.

The findings of the research, commissioned by chartered accountancy firm Kingston Smith LLP, come just weeks after government proposals were announced to launch a British business bank to help support SMEs and kick-start much needed economic growth, details of which are anticipated in the Autumn Statement.

Sir Michael Snyder, senior partner at Kingston Smith says, ‘This research validates our experience, which shows that what SMEs really need is long-term funding to close the equity gap.

‘We hope the government will take this opportunity to throw high-growth potential SMEs the lifeline they need by providing them with a guaranteed level of core working capital finance with which to develop and flourish.’

The research reveals that successful SMEs regard greater customer satisfaction (89 per cent) and greater customer retention (86 per cent) as two of the top three key factors in evaluating year-on-year success for their business, along with growth in business profits (86 per cent).

Alan Dobie

Alan Dobie

Alan was assistant editor at Vitesse Media Plc (previous owner of before moving on to a content producer role at Reed Business Information. He has over 17 years of experience in the...

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SME funding