SMEs turn to credit cards for finance, research says

Small business bank account owners have begun to turn to credit cards and other high-risk forms of working capital funding for finance in order to keep their firms alive and kicking, new research has said.

Hilton-Baird Financial Solutions, a commercial finance broker, recently published its biannual SME Trends Index survey, discovering that that credit cards are one of two of the most often sources of finance for small and medium enterprise businesses.  42 per cent of SMEs admitted to using credit cards in lieu of more traditional funding sources such as business loans provided by a banking institution.

The most popular external funding method used by SMEs was found to be bank overdraft facilities, with 44 per cent of the total survey respondents reported availing themselves of this option over the last six months.  Another widely used finance method was securing loans from friends and family, with 20 per cent of companies appealing to the generosity of their loved ones to keep their businesses afloat, and a full 25 per cent of respondents were using asset finance while 21 per cent were utilising invoice finance.

January’s VAT increase is expected to lead to even more stress on 34 per cent of the SMEs surveyed in the study.  However his figure rose to 45 per cent among businesses that used both friend and family loan funding and credit cards.

Evette Orams, managing director for Hilton-Baird, commented that even though economic conditions remain difficult, she was frankly astounded at how many small businesses had decided to use forms of finance that offer quick infusions of cash in exchange for huge risks to their bottom line.  Business managers or owners may feel a higher level of comfort in turning to family and friends they know they can trust, or choose to utilise a familiar credit card for their needs, doing so carries long-term consequences that may not be at the forefront of an SME owner’s mind at the time, the managing director added.

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