A survey recently conducted by Bibby Financial Services reveals that whereas in 2010 55% of small businesses did not apply for any external funding, in 2011 that figure rose to 66%. It seems that an increasing number of business owners are relying on personal savings for working capital, instead of seeking loans or relying upon bank overdrafts and credit cards.
A separate survey by the Federation of Small Businesses found just 35% of its members used an overdraft last year, down from 43% in 2010. There was also a decline in the number of companies using secured and unsecured bank loans.
Market Invoice is a new “eBay for invoices” website which allows companies to sell individual invoices from large clients to institutional investors. Co-founder Anil Stocker says his start-up is benefiting from owner-managers who are reluctant or unable to secure bank finance.
High street banks claim that businesses are actually choosing to borrow less money – and that this is the reason the banks failed to meet the “Project Merlin” lending target to small firms set by the Government in 2011. Mr Stocker, however, argues that a quarter of the first 150 auctions on his website were from companies unable to source bank funding.
Regardless of the reasons, however, Edward Winterton (Executive Director of Bibby Financial Services) anticipates an increase in insolvency figures this year – as a result of this increasing trend for businesses to source most of their funds from their own personal savings.
As the owner of a small business yourself, what are your views on this subject? Off To See My Lawyer is interested to know!