Personal savings and mortgages used to fund the biggest investments
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 says Experian UK.
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 – and thus put their homes at risk – to fund their business while 47 per cent of SME Directors said that they rely on high-interest personal credit cards for everyday business affairs.
Personal bank accounts are also frequently used by SME Directors with two thirds (65 per cent) stating that they have drawn on funds directly from their current account and nearly half (48 per cent) saying that they had dipped into their personal savings.
The Experian study also looked at the type of financing used to fund investments of various values and found that the majority of investments over £10,000 were funded using personal mortgages and savings. Current accounts and credit cards were more likely to fund smaller investments under £5,000.
When asked what they were using the money for:
- 48 per cent said to set up their business
- 37 per cent to invest in new equipment or premises
- 30 per cent to pay suppliers
- 26 per cent to clear off debt
Ade Potts, Managing Director, Experian’s SME business, UK&I, said: “This research shows that SMEs are becoming increasingly resourceful when it comes to funding and are using a variety of different financing options that are available to them to set up or expand.
“However, there are some key factors that SME Directors should consider before using personal finance sources. Although it might initially seem like using personal funds for business purposes is the easiest route, it can affect personal credit records and leave them vulnerable, particularly when you consider people are using their homes as security. Directors could avoid these risks by exploring and researching the various forms of finance and funding available and tailored for businesses. By giving their commercial credit score a health check, businesses can make themselves more attractive to lenders and keep their personal savings in the bank.”
Source: Experian UK