Home businesses are turning to personal savings

Published:  25 November, 2014

Thirty-nine percent of home businesses have dipped into personal savings to fund short-term cash requirements for work, according to new research from Direct Line for Business.

When it comes to funding, 28% have relied on friends, family and their partner, while 22% have resorted to using their credit cards to help with short-term cash flow requirements. Only one in 10 of home businesses have taken out a loan to fund their ongoing operations.

A similar theme appears when analysing initial start-up funding for home businesses, where personal savings are again the favoured source of finance, with 63% of home businesses choosing this option. Only 3% of home-based start-ups have taken advantage of government grants.

Family is important to the initial funding phase for small businesses, with 15% of owners being supported early on by their partner and 6% depending on a ‘family round’ of finance. The survey also revealed that only 6% take on a loan to start up their business, the same percentage as those who used a credit card to get their business up and running.

Jazz Gakhal, head of Direct Line for Business, offered some advice to those starting a home business without considering investigating traditional bank funding options.

“Home businesses should actively research the sources of funding available to them,” she advised. “While initial funding from friends, family and using personal savings can help a business get off the ground, it is not a sustainable source of finance to efficiently grow a business. Relying on a network of friends and family for finance can have the added pressure of not wanting to let down those that are close to you. As such, it is very important that home businesses protect this investment and help put personal worries to rest too, through having the right insurance in place.

“It would be a shame if their investment in an otherwise promising enterprise was lost as a result of something easily insurable, such as loss of stock through fire or flooding.”

Meanwhile, Yasmina Siadatan, entrepreneur and winner of the fifth series of The Apprentice, provided ideas for alternative methods of funding.

“Banks are no longer the only source of finance for businesses,” she observed. “There are lots of alternative options, from crowd funding, Start Up Loans and P2P lending to the more left-field options such as speed funding events.

“It’s also worth taking advice from business networking groups and local authorities about potential finance options. You may find public and private institutions, including universities, offering grants and loans to businesses that can display potential.”

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