Business owners turn to family and friends for finance

As many as 1.6 million people are helping to bridge the £4 billion business funding gap in Britain by providing business owners with finance according to a new report.

Entrepreneurs have been relying on loved ones to the tune of £7.2 billion with an average sum of £4,479 being lent at a time.

Kevin Caley, founder and chairman of ThinCats, which carried out the research said:

“Since the financial crisis in 2008, SMEs have had a pretty torrid time sourcing finance from traditional avenues, so it’s inevitable that some business owners are turning to friends and family for help. However, this sort of lending comes with all sorts of personal and emotional baggage, and it’s important that anyone in this position knows there is a healthy alternative finance market out there, with greater flexibility to lend when the banks will not.”

“The good news is, this tightening of lending from banks has encouraged us to become a nation of peer to peer lenders, giving everyday investors the opportunity to make healthy returns through the emergent alternative finance sector. Over 160,000 people have already lent money through a peer to peer platform, and based on the 1.6 million already doing so through loved ones, we could well see many more.”

The company states that banks turned down 26 per cent of some 324,000 loan applications that SMEs made in 2015.

The bank of mum and dad appeared to be most firmly behind the trend of entrepreneurs borrowing from loved ones, with people aged over 55 almost three times as likely to have made this type of loan than any of the age groups below them.

The alternative finance sector has been working to close the funding gap for SMEs and have lent 3.4 billion to British businesses since 2014. It’s widely predicted that this figure will rise due to the new government SME finance matchmaking service which will require banks to redirect entrepreneurs to alternative lenders if they can’t help them with finance.

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Lucy Liddiard