By Edward Winterton, Executive Director Of Bibby Financial Services

More business owners are resorting to drawing on their own personal savings to keep their businesses going compared to this time last year, according to new research by Bibby Financial Services.

As part of the research for our quarterly Business Factors Index taken during Q4 of 2011, we found that using personal savings to raise the finance needed for running their firms became the number one option for small and medium-sized business owners in the UK, ahead of bank overdrafts, loans and credit cards. Only four per cent of firms stated they had applied for funding through Government initiatives despite HSBC and Santander stating they had met Project Merlin objectives for 2011.

Alongside this finding, the study also revealed that two thirds (66 per cent) of UK business owners have not even applied for external funding over the past 12 months – an increase of 11 per cent year-on-year.

The findings have led to concerns about prospects for the sustainability of small and medium-sized businesses self-funding in 2012, when latest insolvency figures for the UK revealed, there were 1,252 more insolvencies in 2011 compared to the year before. This equates to a total of 21,070 businesses failures (1.1 per cent of the UK business population) last year compared with 19,818 in 2010 (1.03 per cent).

The lack of awareness among small and medium-sized business owners of the full range of available funding options is their biggest barrier for effectively accessing the finance they need to run and grow their firms.

We feel there is an urgent need to educate business owners in the UK, from start-ups to more established businesses about their funding options and how they can access the facilities most appropriate for their business’ needs.

At the same time, it is also important that government agencies understand how invoice finance works and how appropriate it is for SMEs looking for funding to help them grow. It should be part of the portfolio of finance solutions promoted to businesses by the different government agencies.

If businesses continue to tap into their personal savings to keep on top of cash flow then we could see insolvency figures increase further throughout the year.

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