SMEs using personal credit to fund their businesses? The economy is broken

As the saying goes, ‘an honest day’s pay for an honest day’s work’, unless you are running one of the UK’s 5.5 million SME businesses

SMEs using personal credit to fund their businesses

Since Adam was in short trousers, small firms have had to battle with cash flow issues, and it doesn’t show any sign of letting up.

Based on recent research from Shawbrook nearly half of SMEs are using a personal credit card to fund their business, mostly due to cash flow problems. And this isn’t confined to the smallest of ventures.  45 percent of SMEs surveyed that turn over £25-£49.99 million a year are using a personal credit card. However, 47 percent of firms turning over up to £99.9m are turning to their flexible friend!

Shawbrook’s study also found that two in five business owners are currently using a personal loan and 46 percent have had to dip into their own savings to plug the cash flow gap. For a small business, the gap between winning and delivering work and being paid for it can feel like it’s as wide as the Grand Canyon, which is causing them to turn to high interest borrowing on cards or personal loans.

I’ve been banging on about late payments for years and I’m not alone in what’s become equally known as ‘unapproved debt’. Big companies use their market power to bully smaller firms by not paying on time.  If one firm is waiting on payments it can prevent it from paying its own suppliers, grinding the wheels of commerce to a complete stop.  This all stems from the biggest of businesses and it trickles down the supply chain to the sole traders and micro-businesses who are hit the hardest.

With just under half of invoices being paid late and 12 percent settled more than 30 days late, this is costing SMEs hundreds of millions a year. This has to stop. Payment terms from large companies to SME suppliers have to be legally enforceable and when broken, without agreement, have to incur big fines. And the cash from the fines needs to be put into a pot that small businesses can apply to receive as grants to keep it where it belongs, not in the Treasury coffers, but at the sharp end of the economy helping SMEs grow. And, while I’m on the subject of grants and the like, the Shawbrook research says that one of the other reasons that small businesses are relying on personal debt is due to limited access to funding.  

This is just madness, but nowhere near a new phenomenon.  I remember reading Duncan Bannatyne’s autobiography where he talked about maxing out on three credit cards to fund his first nursing home.  But that was the 1980s and we are led to believe that there are now piles of cash for small firms and start-ups to tap into. But if this research is anything to go by that’s complete rubbish.  It’s just another example of Britain’s broken economy.

We’re not homeless or the NHS, but the similarities are stark when it comes to promised support that doesn’t materialise. We’re supposed to be a nation of shopkeepers, or as I prefer a nation of entrepreneurs, where more than 99 percent of businesses are owner managed.   However, these are the ones that have the weight on their backs often with little or no support, and it can’t remain that way.

Charlie Mullins
Charlie Mullins

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