Many UK Small Businesses Rely on Family for Startup Funding

A recent study by Charles Stanley reveals that a significant number of small businesses in the UK kickstart their ventures with financial support from family. It looks like the 'Bank of Mum and Dad' is now helping new businesses, not just homebuyers.

Challenges in Accessing Affordable Cash

This comes at a time when small businesses are finding it hard to get affordable cash. Only 8% of them get their first funds from venture capital firms, and 10% from private equity. Most (44%) turn to their own savings, and 21% get bank loans.

But getting a bank loan isn't easy for many small businesses. Almost half end up using their personal credit cards to keep going. When traditional funding options are limited, entrepreneurs often turn to personal savings or family help, like the Bank of Mum and Dad.

Rich Wagner, CEO of SME bank Cashplus, explains that new businesses without a credit history often get turned down by big banks. So, they end up using personal accounts, which might seem easier but the products aren't tailored to businesses and cause difficulties with taxes. That's when personal savings or family support becomes the go-to solution.

Source: This Is Money: A FIFTH of small businesses turn to Bank of Mum and Dad for start-up help

Diverse Approaches When Traditional Funding Isn't Viable

Entrepreneurs try different things when regular startup funding isn't an option – some sell their personal possessions (10%), and others remortgage their homes (7%). Crowdfunding, popular for big companies like Monzo and Revolut, is used by only 4% of entrepreneurs for their initial funding, similar to those relying on lottery winnings.

Andrew Meigh, managing director of Charles Stanley, talks about the family side of UK businesses. He says nearly half of business owners are starting for the first time, and 20% find themselves becoming accidental entrepreneurs. Even when businesses grow, family stays involved, with 15% using inheritances and 13% getting help from parents to help further grow their new business.

As businesses grow, they use less of their savings (33%) and slightly more bank funding (23%). This shows how small businesses and startups rely on various sources, including family, to keep going.

Article by This Is Money