Startups Dip Into Personal Funds Amongst Funding Gap

12th March 2018

Nearly 40 percent of start-ups have had to use their owner’s personal savings to stay afloat over the last 18 months, according to Hitachi Capital.

According to new research conducted by financial services company, Hitachi Capital, businesses who are less than 10 years old are twice as likely to use their own money to fund their business. Younger companies are generally unaware of the options that are available to them and owners are forced to resort to personal savings. Much of this is motivated by the sentiment that big banks will not hesitate to refuse the funding so many small companies prefer to dig into their own pockets.

Businesses of all sizes need to know their options when they look for ways to fund expansion projects. While big banks were once the easiest source of funds, recent financial scandals have diminished the public and professional trust in the institutions. If startups do not have the funds for expansion and bank managers will not help, credit management companies are an easy and efficient alternative. At the Credit Protection Association, our debt recovery services can propel small businesses ahead of the competition, and without the exploitative borrowing rates.

Hitachi’s survey of 1225 businesses found that a further 15 percent of start-up owners have turned to family members for loans over the last 18 months.

Hitachi Capital business finance managing director Gavin Wraith-Carter insists that this lack of funding for startups is a sign of wider problems in our cultural makeup.

He said: “If owners of start-ups are raiding family savings to keep their businesses afloat, it is a warning sign the industry has been doing something very wrong for too long.”

The UK Business Angels Association has set up hubs around the country to help investors in small businesses find more firms to back.CEO Jenny Tooth said it wants to open sites in Manchester and Newcastle to break the stranglehold that London, Oxford and Cambridge have on investment.

Startups and small businesses are the lifeblood of our economy, their young years give them the courage to embrace new technology and ideas. Their passion is not always matched with financial strength, however, with many struggling to fund their own ambition. By turning to their personal savings, they pit their personal credit against their professional success. Education needs to be encouraged for small businesses,so they have an awareness of what is available to them when they decide to expand their business.

Business Angels’ initiative to encourage investment is a good step, and this should encourage more small businesses to garner relevant knowledge. Similarly to the crowdfunding alternative platform, however, the involvement of investors threatens to reduce the owners’ possession of their own enterprise. Here at the Credit Protection Association, our debt recovery tactics recover funds that are owed, and leave our members financial standing improved, rather than further indebted. Our credit management products further protect our members’ cash flow from any further threats; our credit reports and monitoring tools keeping late payers and bad payers at bay.