SME business owners increasingly rely on personal finances says Scottish Pacific
(18 March 2016 – Australia) Two out of three Australian SME owners use personal finances to support their business according to the SME Growth Index
Derived from interviews with more than 1200 Australian small and medium sized business owners, the latest round of Scottish Pacific’s Index highlights that “1 in 5 owners regularly dip into their own pockets to fund their business”, while almost half occasionally do, prompting calls for SMEs to seek better funding options
Further, the Index has found the number of SMEs resorting to personal finances (including credit cards with high interest charges) to support business growth is very high at 65.4 percent, with 17 percent regularly drawing on personal finances and 48.4 percent doing so occasionally.
Only 10 percent of SME owners had never settled business expenses using non-business sources.
Scottish Pacific CEO, Peter Langham said the findings on personal credit card use posed significant concerns, because there were better funding options available to help SMEs grow.
“How SMEs are funded has a significant bearing on operations, from how well they can manage cash flow to the pace at which they can expand. It’s crucial to get it right and not think too short term,” he said.
“Personal finance may appeal from a convenience, speed and accessibility perspective – the downside is that higher than necessary funding costs cut directly into margin, and personal financing can impact on lifestyle and leave owners open to family conflict which can destabilise the business.
“I’d strongly encourage SMEs, whether product or service orientated businesses, to seek smarter funding options. Look beyond the banks as this is an active, innovative space trying to offer a better alternative.”
According to Langham, SMEs were open to paying higher rates to obtain finance if it meant they didn’t have to provide real estate security.
“This reflects a growing awareness amongst SME owners that putting the house on the line is no longer a given and suggests openness to alternative, innovative funding solutions such as trade and debtor finance.
“This is key for up and coming entrepreneurs who have great ideas but may not own any real estate,” Langham said.
The latest report can be accessed here.