UK small business owners are increasingly taking out personal loans to fund their firms due to the troubles they face in securing external capital.
More than half (55 per cent) of UK small and medium-sized enterprise (SME) owners have taken out a personal loan to fund their business, research by tech firm Codat shows.
The poll of 872 financial decision makers at British SMEs showed 47 per cent had faced difficulties in accessing external capital as it found business owners are increasingly resorting to use of personal loans.
Codat co-founder Alex Cardona said: “The small business credit landscape is not set up for businesses or lenders to succeed.”
“Lenders don’t have the necessary insight to make accurate decisions and the application process is so awful for SMEs that they’d often rather take out a personal loan to fund their business – or even make do without the cash they need.”
The research sits within Codat’s whitepaper on external funding, which argues technology could be used to boost the country’s economic growth and bridge the UK’s £22bn SME funding gap.
The Whitepaper says “SME Funding Passports” – containing all the information required to apply for external funding – could make it easier for small businesses to secure the financing they require.
Martin McCann, CEO & co-founder at Trade Ledger said: “SME access to credit will be solved via an ecosystem of lenders and technology partners.”
Codat’s Whitepaper comes as the UK’s economic downturn is expected to worsen the situation, as almost three quarters (72 per cent) of those polled said the costs and administrative burdens of securing external funding mean they are unlikely to apply for external finance next year.
The turn towards use of personal loans comes as more than a quarter of SMEs said their businesses would grow faster if it was easier to access credit – including more than half of small firms with more than 10 employees.