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SMEs forced to resort to the family bank

London, UK (29/01/2010)

US Spurned by the banks, UK business owners have supposedly raised £45bn from 'alternative sources'.

Many entrepreneurs are forced to rely on loans from their nearest and dearest when they first start a business (a process affectionately known as the ‘friends and family round’). But according to credit specialist CreditPal, some of them are now having to do it all over again: it claims that UK SMEs have sourced a whopping £45bn over the past two years from ‘alternative’ sources of finance, i.e. not banks. This is all very well for those business owners who happen to have families ready with the readies, or those who don’t mind borrowing from a loan shark (eek!). But what about everybody else?
 
With business owners desperately needing money to stay afloat, and banks still reluctant to lend it, it’s no real surprise that they’re looking elsewhere. In fact, CreditPal claims that 41% of SMEs have raised money from ‘alternative’ sources, compared with 35% who have gone down the more traditional route of borrowing from financial institutions. And we’re not talking about a couple of quid here and there: on average each SME in that 41% has allegedly raised almost £67k in the last two years. That’s the equivalent of £2,776 a month – no mean sum, we’re sure you’ll agree.

SME owners have clearly had to dig deep as a result of the last year’s financial pressures: CreditPal found that 15% have been forced to sacrifice family holidays for the sake of the business, 8% have sold private assets like shares and property, 4% have had to dilute equity stakes and a further 4% have even resorted to borrowing cash from loan sharks (we’re not quite sure whether that counts as admirably committed and brave, or just foolhardy).

But why are so many having to resort to alternative sources of finance? Well, CreditPal reckons it’s because companies are terrified about damaging their credit rating – but that may be something to do with the fact that they flog a product that supposedly helps small firms convince reluctant lenders. So we’ll pass over that and move on to the more likely explanation: that many are still getting no joy from the bank.

This is perfectly plausible – but that £45bn figure still sounds like an awful lot to us. If British business owners really have managed to raise a sum like that, they must come from some seriously rich families.

For more information, please visit: http://www.managementtoday.co.uk/news/980482/SMEs-forced-resort-family-bank/?DCMP=EMC-Entrepreneurship



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