By Daniel Hunter
Nearly four in ten (39%) of businesses based at home have dipped into personal savings to fund short term cash requirements for their business, according to Direct Line for Business.
When it comes to funding, a quarter (28%) have relied on friends, family and their partner, whilst one in five (22%) have even resorted to using their credit cards to help with short term cash flow requirements. Only one in 10 (13%) 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 almost two-thirds (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 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, said: “Many people starting a home business do not even consider investigating traditional bank funding options. Owners of businesses often need relatively little start-up capital, so turn to those around them for help.
“Home businesses should actively research the sources of funding available to them, 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 friends and family network 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.”
Yasmina Siadatan, Entrepreneur and winner of the fifth series of The Apprentice said: “Banks are no longer the only source of finance for businesses. 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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