The Dangers Of Funding Your Small Business With Personal Finances

The Scottish Pacific recently released results for its bi-annual SME Growth Index and has found two-thirds of SMB owners have resorted to personal finances to support the growth of their businesses. This is a worrying trend. Here’s why.

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The Index has shown that 58 per cent of the 1200 SMBs surveyed are in positive growth mode with an average revenue growth forecast of 5.2 per cent; that’s down from 6.7 per cent last year. One of the more alarming findings of the survey is that 65.4 per cent of SMBs have turned personal finances, including credit cards with high interest rates, to support business growth and 17 per cent do it on a regular basis.

Only 10 per cent of SME owners had never settled business expenses using non-business sources. A majority of SMBs have cited access to credit as a major barrier to growth and success. Banks often offer secured loan options to smaller businesses but SMBs want unsecured access to debt, which is likely a driver to business owners resorting to personal finances.

But Scottish Pacific CEO told Business Insider that it’s dangerous for SMBs to dip into personal funds:

“How SMEs are funded has a significant bearing on operations, from how well they can manage cash flow to the pace at which they can expand. It’s crucial to get it right and not think too short term…
“Personal finance may appeal from a convenience, speed and accessibility perspective – the downside is that higher than necessary funding costs cut directly into margin, and personal financing can impact on lifestyle and leave owners open to family conflict which can destabilise the business.”

[Via Business Insider Australia]

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