Massive growth of ‘personal’ finance bodes ill for business future warns leading entrepreneur

“It is extremely difficult to gain adequate finance from the banks to meet growth targets,” said Gary David Smith – co-founder of Prism Total IT Solutions.

“Many SME’s are not growing as they should do because they do not have capacity on demand. Using the personal savings of the business owner as working capital is always going to be an unsustainable strategy – except in very exceptional circumstances,” said Mr Smith whose company supplies complete IT support to over 1000 SME’s nationwide.

The report by Bibby Financial Services surveyed 450 business owners and the increase in companies saying they did not request external capital rose by 11 per cent from the 2010 figure.

Personal savings became the most likely source of working capital for these businesses in the final quarter of 2011 said Bibby’s report.

A different survey, this time conducted by the Federation of Small Businesses, reported that only 35 per cent of its members made use of an overdraft in 2011 – which was a 43 per cent drop from the year before.

Earlier this week the five main UK banks reported that they had missed their Project Merlin lending targets to SME’s by more than £1 billion.

The government’s Project Merlin arrangement required the UKs five largest banks – HSBC, Santander, RBS, Lloyds and Barclays – to make it easier for small businesses to access credit. The banks were also bound to an agreement to lend £76billion to small firms but only managed £74.9bn during the last twelve months.

A spokesman for the banks blamed the shortfall on a lack of demand from small businesses and described the market for credit as ‘remaining weak’.

“The truth of the situation is that small businesses cannot access funding at competitive rates from the banks and so are resorting to personal savings,” said Smith.

“Personal financial resources will not be able to sustain growth in the SME sector which is where government expects the majority of employment growth to come from.”

“Even profitable businesses with assets are finding it tough to sustain growth – the situation looks bleak for the future,” he said.

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