New research shows that the harsh bank lending conditions have prompted 28 per cent of business owners to turn to friends, relatives and company directors to raise funding for their business.
With a further eight per cent of entrepreneurs using personal credit cards to get cash to run their business, it is no wonder there was a 25 per cent jump in personal insolvencies last year.
Martin Williams, managing director of credit referencing agency Graydon UK, which conducted the research, believes the trend could also explain why company insolvencies actually started to fall last quarter.
“With over a third of small business owners taking on personal risk to stay afloat, official corporate insolvency figures may have been masked by growing numbers of individuals putting their own finances on the chopping block, instead of those of their business,” he explains.
According to the study, 40 per cent of those looking for credit during the second half of last year were unsuccessful, with 52 per cent refused business loans and 38 per cent refused extensions on their overdrafts.
Reacting to the research findings, Phil Orford, chief executive of the Forum of Private Business, comments: “The continuing credit drought means more entrepreneurs are being forced to seek alternative sources of finance – including family, friends and personal loans.
“The danger is that the UK will become increasingly uncompetitive as fewer people are encouraged to start their own businesses.”