Research shows just 3% of small businesses secure a bank loan
Almost three quarters of small company owners launched their new business venture with working capital of £2,000 or less research finds.
Of the 5,000 small business owners polled by online freelance marketplace PeoplePerHour, 76 per cent say they had to use their own personal savings as working capital, while 13 per cent add that redundancy money provided their start-up funds.
One in five small business owners turned to the ‘bank of friends and family’ for start-up capital.
Businesses shun the bank loan route, with only 3 per cent of small business owners polled saying they were able to secure a bank loan to get their business off the ground, suggesting a reluctance among banks to lend to riskier start-ups.
The number of people starting businesses has risen significantly in the past few years, with PeoplePerHour alone having seen the number of new small businesses registering on the site more than double in the past 12 months.
This increase is partly due to the economic climate, but also because more and more people are making life choices to work for themselves.
When asked what the biggest obstacles they faced when starting out, almost half of small business owners (49 per cent) say that struggling to maintain cash flow was a chief concern, while a quarter (25 per cent) say access to funding was the main problem.
One in seven (15 per cent) say the lack of business support and advice was an issue, while 6 per cent admit government red tape is holding them back, with 5 per cent citing problems recruiting skilled staff as a concern.
Xenios Thrasyvoulou, founder and CEO of PeoplePerHour says that the challenge of launching a new business is no better illustrated than by the number of business owners who are having to rely on friends and family to raise start-up capital, largely because of the void left by the banks shutting up shop.
‘It helps that it’s never been easier or cheaper to start a business from scratch, opening up the self employed route to a whole new generation of aspiring entrepreneurs. Businesses are being launched from kitchen tables across the country, as the online revolution has knocked down the barriers to entry.
‘Businesses still face the same issues though – top of the list a failure to get to grips with cash flow. It is essential that business owners follow sensible business practices from day on, to ensure that they don’t over-stretch themselves.’