• How Do People Fund Their Businesses?

    A current list of the sources of funding people are using for their businesses.How do people fund their businesses? I have previously listed all the various funding options that are available to businesses. The new SME Finance Monitor research report from BVA BDRC (Q2 2019) gives some quantified insight into what people are actually using. The study uses significant sample of UK SMEs - 18,002 respondents annually.

    How Do People Fund Their Businesses?

    The results were as follows:

    • 42% were using some form of finance, leaving 58% that use none.

    Reading through some of the underlying research reveals a level of caution due to uncertainty that continues to dog UK SMEs. It is little wonder when we are in the midst of continued uncertainty about the nature and potential impact of Brexit.

    Core Finance

    Of those using some form of finance, the breakdown of sources was as follows. Of those using some form of "core finance" the sources were:

    • 22% bank overdraft
    • 17% credit cards
    • 8% bank loan
    • 2% commercial mortgage
    • 1% other loan

    Other Finance

    Of those using some form of "other finance", the sources were:

    • 9% leasing or hire purchase
    • 3% loans from directors, family or friends
    • 1% equity from directors, family or friends
    • 1% invoice finance
    • 1% grants

    Invoice Finance As An Alternative

    The figures show a heavy reliance upon the bank for an overdraft or loan, and has I have reported previously, there are a significant proportion of applications that are declined. Invoice finance is still only accounting for a small percentage of the alternative finance sector, with previous research suggesting that a lack of awareness and understanding continues to hold the sector back. See our #IFaware campaign.

    UK Finance Statistics

    The most recent statistics from UK Finance (the trade body for a large part of the invoice finance sector), from their Invoice Finance and ABL Update show that numbers of factoring and discounting users have remained relatively low, with a slight shift (when comparing Dec 18 with Sep 18) in favour of domestic invoice discounting facilities, with domestic factoring facilities falling back slightly. Regardless of any product trends, the sector as a whole could be used to fund a far larger portion of UK SMEs if the products were more widely understood.

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