SMEs reliant on personal finances for funding

Scottish Pacific’s latest SME Growth Index found that 65.4 per cent of SME owners surveyed have had to resort to personal finances to support business growth.

Seventeen per cent said they regularly draw on personal finances, 48.4 per cent said they do so occasionally, while just 10 per cent of SME owners said they have never settled business expenses using non-business funding sources.

Scottish Pacific CEO Peter Langham said the findings pose significant concerns and highlight a need for SMEs to seek better funding options.

“Personal finance may appeal from a convenience, speed and accessibility perspective – the downside is that higher-than-necessary funding costs cut directly into margin, and personal financing can impact on lifestyle and leave owners open to family conflict, which can destabilise the business,” Mr Langham said.

“I’d strongly encourage SMEs, whether product or service-orientated businesses, to seek smarter funding options. Look beyond the banks as this is an active, innovative space trying to offer a better alternative.”

The report also found that 67.9 per cent of SMEs surveyed are more willing to pay higher rates to obtain finance, if it means they don’t have to provide real estate security.

“This reflects a growing awareness amongst SME owners that putting the house on the line is no longer a given and suggests openness to alternative, innovative funding solutions such as trade and debtor finance,” Mr Langham added.

In the past year, there has been a 20.6 per cent increase in non-bank lending demand, according to the report.

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