Family, friends and loan sharks help SMEs raise £22.6bn

SMALL firms have raised an impressive £22.6bn from alternative sources of finances in the last 12 months, according to research.

A study by CreditPal shows that one in 10 small business owner/managers turned to friends and family for fund to help keep their companies afloat.

Family holidays have been sacrificed by 15% of those seeking alternative forms of finance.

Pension funds have been raided (3%) and children (1%) have been pulled out of private education as the recession has hit revenues.

Owner/managers have also been forced to sell private assets in place of funding from traditional financial institurions through bank loans and overdraft facilities.

On average each SME utilising alternative forms of finance has raised capital totalling £66,624 in the last two years – the equivalent of £2,776 a month.

In the last 24 months SMEs have raised £45bn from alternative sources.

The research also found that 41% of SMEs have turned to alternative sources of finance compared to 35% who approached their bank.

Chris Poll, chief executive of CreditPal, said: “Thousands of SMEs have been forced to rely on credit to survive in the last two years as a result of disruptions to business cash flow.

“We believe we have identified an SME fear factor at play with companies more likely to seek finance from non-traditional sources because they are scared of even applying for finance from banks and building societies. We desperately need to see a return to traditional lending if the economy is to return to an even keel.”

Worryingly, 4% of SMEs have turned to private lenders including loan sharks that charge punitive rates of interest to raise funds.

Nearly 10% have been forced to sell privately held assets such as cars or property for fund their businesses.