Experian Has Found Many Businesses Are Using Mortgages To Fund Investments

New research published by Experian has shown that a quarter of SME directors in the UK have used personal finance to support their business.

Despite the risky nature of remortgaging a home for the purposes of funding an enterprise venture, a large number of the country's smallest firms are deciding to take this option - often after being rejected for traditional funding by banks.

Experian surveyed SMEs from across the UK to find out how they fund capital investment and found 65 per cent of directors have drawn on funds from their current account, while 48 per cent have dipped into their personal savings.

The global information services company also asked SMEs what they were using the money for and 48 per cent used it to start a new business, while 37 per cent pumped funding into equipment or a premises.

Suppliers also profited from this move to personal finance, with 30 per cent of enterprise operators using their own cash to pay off orders, while a further 26 per cent used the capital for debt reduction.

Ade Pottes, managing director of Experian's SME unit in the UK and Ireland, said: "SMEs are becoming increasingly resourceful when it comes to funding and are using a variety of different financing options that are available to them to set up or expand.

"However, there are some key factors that SME directors should consider before using personal finance sources. Although it might initially seem like using personal funds for business purposes is the easiest route, it can affect personal credit records."

The coalition government has pledged to make it easier for SMEs to access traditional funding routes recently, but a simultaneous drive to get banks to increase their capital bases has left some institutions reluctant to pump money into potentially risky enterprises.

To combat this, the government wants to create a new business bank to allow SMEs to get smaller loans for expansion plans.

Expert Opinion

This research has put a spotlight on some of the finance concerns that smaller businesses can face and it is clear that more needs to be done to ensure that growing firms are given the right information regarding all of the options available to them. <br/> <br/>"It also tallies with other research seen in recent weeks, such as the report by the European Commission which revealed many small companies were finding it difficult to access funding. <br/> <br/>"Access to finance is an obstacle but the government is looking to address this. Considering the important role that SMEs play in the economy, such support cannot come soon enough." Steven Beahan - Partner