A third of SMEs are relying on personal finance to prop up their business as banking money dries up and a late payment culture continues to blight smaller firms.
A survey by the Federation of Small Businesses (FSB) and ICM Research reveals that 33 per cent of respondents described personal means as a major source of finance in 2009.
Personal savings were cited by 24 per cent of firms, as were retained profits. A personal credit card was used by 14 per cent, with half of those claiming it was a major source of money.
About one in 10 companies used funds from family and friends and two per cent even used their personal pension to support their business. An overdraft was cited as a major source of finance for 28 per cent of firms and five per cent said the same of supplier credit.
FSB national chairman John Wright drew a correlation between SMEs’ reliance on personal funding and the government’s poor payment performance.
“Small businesses rely on receiving payments within the timescale agreed to maintain cashflow to ensure the business can run on a day-to-day basis,” he said.
Central government, EU institutions and quangos were the worst offenders,
each paying at least 30 per cent of suppliers late. Local authorities and the
settled a quarter or more of bills late.
Adam Harris, chief executive of trade body the Technology Channels Association, claimed using personal finance and retained profits has long been a “calculated risk” for SME owners.
“Quite a few businesses have not had much choice as they have been carrying bad debt,” he said. “Using personal finance is not ideal, but needs must.”
Pierre Lams, founder of mobility VAR Handheld PCs, claimed he had seen firms turning to personal funding last year.
“I know of businesses that have struggled and have had to do that,” he said. “I have friends with businesses who have had to fund them.”
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