Posted on 27.11.2013, by Rob Warlow
With many businesses continuing to find access to finance challenging owners are turning to a variety of personal sources to either start up or fund growth.
Findings by Experian, the global information services company, show that a quarter of small and medium sized enterprise (SME) directors have used personal finance sources of funding including mortgages, credit cards and savings accounts to support their business.
Experian surveyed a range of SMEs to better understand how they fund business ventures. Of those that had used personal finance, almost a third had used personal mortgages to fund their business while 47% said they have relied on high-interest personal credit cards for everyday business affairs.
Personal bank accounts are also frequently used by SME Directors with two thirds (65%) stating that they have drawn on funds directly from their current account and nearly half (48%) saying that they had dipped into their personal savings.
When asked what they were using the money for:
- 48% said to set up their business
- 37% to invest in new equipment or premises
- 30% to pay suppliers
- 26% to clear off debt
Whilst many will say that businesses should first be turning to external sources of finance (primarily banks) tapping into personal resources is a cheaper method of finance. The exception to this is of course accessing finance via credit cards and you do need to be aware of a potential impact on your personal credit rating if you go down this route.
As well as being a cheaper source of finance, when it comes to approaching banks for finance the fact you have put in a proportion of the project cost is a plus point.
So just remember, no bank wishes to take all the risk.