By Daniel Hunter

One in five small business owners turned to the bank of ‘friends and family’ for start-up capital, and almost three quarters (73%) launched their new business ventures with working capital of £2,000 or less, according to a survey of small business owners conducted by online freelancer marketplace PeoplePerHour.

Of the 5,000 small business owners polled, 76% said they had to use their own personal savings as working capital, while 13% said that redundancy money provided their start-up funds.

Only 3% of small business owners polled said they were able to secure a bank loan to get their business off the ground, highlighting the banks’ reluctance to lend to riskier start-ups. As a result, business owners have been forced to look elsewhere for funding to get their ventures off the ground.

The number of people starting businesses has risen significantly in the past few years. PeoplePerHour alone has seen the number of new small businesses registering on the site more than double in the past 12 months. This increase is partly due to the economic climate, but also because more and more people are making life choices to work for themselves.

When small business owners were asked what the biggest obstacles they faced when starting out, more than a third (49%) said struggling to maintain cash flow was a chief concern, while a quarter (25%) said access to funding was the main problem. One in seven (15%) said the lack of business support and advice was an issue, while 6% admitted government red tape was holding them back, and 5% had problems recruiting skilled staff.

“The challenge of launching a new business is no better illustrated than by the number of business owners who are having to rely on friends and family to raise start-up capital, largely because of the void left by the banks shutting up shop," Xenios Thrasyvoulou, founder and CEO of PeoplePerHour, said.

“It helps that it’s never been easier or cheaper to start a business from scratch, opening up the self employed route to a whole new generation of aspiring entrepreneurs. Businesses are being launched from kitchen tables across the country, as the online revolution has knocked down the barriers to entry.

“Businesses still face the same issues though — top of the list a failure to get to grips with cash flow. It is essential that business owners follow sensible business practices from day on, to ensure that they don’t over stretch themselves.

“This includes not taking on too many full time staff, in their desire to expand quickly, putting undue stress on the company’s financial position. A growing number of small businesses are now recognsiing the benefits of having a flexible workforce, tapping into a global pool of skilled talent through online freelancer platforms - hiring people when and if they need them.

“Starting a business from scratch is no longer the daunting prospect it once was, and that should encourage a lot more people to give it a go.”

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