Majority of SMEs rely on savings for working capital in 2011

According to the findings of a recently released research study, two out of every three small business bank account holders relied on savings for their working capital in 2011.

Bibby Financial Services, the firm that conducted the research, said that the number of smallcompanies dipping into the personal savings accounts of their owners increased by 11 per cent from 2010’s figures.  The trend is a ‘worrying’ one, according to industry experts.

Not only are small business owners plundering their own savings pots in order to finance their companies, but the use of other banking facilities, such as overdrafts, have undergone a decline as well.  Another research study conducted by the Federation of Small Businesses discovered that out of its entire membership, only 35 per cent used overdrafts in 2011, whereas 2010 saw 43 per cent of Federation members doing so.

Bibby’s executive director, Edward Winterton, said that the trend to turn to personal savings for business finance is an unsustainable one.  If firms persist in tapping into the savings of its owners, insolvency figures could go up later on in 2012, as the chief executive warned that using personal savings to aid business growth runs counter to design.

The new research findings come on the heels of Government figures demonstrating that small business lending targets set by Project Merlin, to be met by the nation’s major banking institutions, were missed by £1.1 billion.  Banks have been arguing that demand for business lending has been in decline over the past few years, which is why lending figures continue to stay low, yet Bibby’s research seems to indicate an alternative tale of banks simply not lending to start-ups and small businesses, forcing these firms to find funding in any way they can.

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