One in seven business SMEs use personal savings to keep business afloat

Only a quarter (25%) of SMEs have avoided taking the option of using personal savings as they already had enough cash in the bank to survive the crisis. This demonstrates the vulnerability of UK’s SMEs when it comes to having the finances in place they need to secure their long term viability and to protect themselves from any future crises.

Two fifths (44%) of SMEs said they have been negatively impacted by coronavirus and the subsequent lockdown – they have either applied for or considered seeking additional financial support. Of this group:

13% have extended an existing loan/finance facility

12% have already taken out a new loan/finance facility

11% are considering applying for a loan/new finance facility

7% have applied for a loan/new finance facility

Chirag Shah, CEO, Nucleus Commercial Finance, said: “As the economic impact of the pandemic becomes clearer, it is alarming that SME owners continue to use personal savings to support their business. While some owners might believe that this is the best option for short-term cash flow needs, taking this measure can have a detrimental effect on the business and also their personal situation, especially if activity does not improve immediately once lockdown measures are eased.”

“Entrepreneurs should know and be reassured that there are flexible finance options available; we have already approved more than £100m in funding to SMEs since the coronavirus outbreak, providing both short and long-term facilities to ensure they have the financial support to get through this challenging time.”

Commenting on the findings Tim Vine, European Head of Finance & Risk Solutions at Dun & Bradstreet said “Small businesses are the ‘engine’ of the UK economy, making up the majority of the UK’s private companies. When Dun & Bradstreet surveyed small and medium enterprise (SME) owners pre-pandemic, only half (49%) of respondents felt having access to finance was critical for success – but times have changed. Funding is becoming a lifeline for many small businesses who are facing serious financial challenges due to COVID-19 with 42% of the trading businesses reporting they have cash reserves to last less than six months and many facing an uncertain future.”

“Despite UK businesses borrowing nearly £35bn from banks and alternative lenders through the three main emergency coronavirus schemes, recent research suggests that one in seven SMEs are using personal savings to help them survive the pandemic. Dun & Bradstreet’s pre-pandemic survey also found that 23% of respondents said they would turn to family members and friends for financial support with 25% using a private investor, rather than applying via banks or government schemes.”

“With over 960,000 applications for the Bounce Back Loan scheme and a further 93,000 for the Coronavirus Business Interruption Loan Scheme, lenders will be taking into consideration data such as credit scores, payment performance and financial health when taking decisions. It is important for businesses to have a viable proposal and repayment plan to ensure a sustainable long-term recovery.”

From Credit-Connect