It causes me concern when we have government ministers accusing banks, such as RBS, of causing business harm by removing or rescheduling debts.
Whenever we read news of business and our banks providing finance to industry – especially the SME’s – we tend to believe they are doing everything they can to support business in helping to rebuild Great Britain PLC.
But are they? Do they support small and medium enterprises struggle out of the great recession we have just been through. I’m not sure they do. It causes me concern when we have government ministers accusing banks such as RBS of causing business harm by removing or rescheduling debts, working against the best interests of their customers.
According to a recent survey by Experian, over a third of the 600 respondents used the bank of “Home & Family” to fund their business. Borrowing is so hard to acquire. So SME directors are using their own homes to mortgage and invest in their business. Another regular source is the personal credit card or dipping into savings to support their business.
Statistics tell a lot. Are the banks supporting business? I think not.
- 65% of directors have drawn funds direct from the family bank account
- Directors from 48% of businesses have drawn funds or used personal credit cards
- Investments over £10,000 are funded by mortgaging family homes
What do they need the money for? 48% used the money as set-up costs. 37% said they used it on equipment or premises. 30% of the funds were used to pay off suppliers’ bills and 26% to clear off debt!
The research shows directors have become more resourceful when applying themselves to their finance needs. However, the use of personal funds should be done only after careful consideration. Pouring money into an enterprise may not always be the answer. If there is an underlying problem within the business that has not been identified and addressed, this may simply be “throwing good money after bad”. So using personal resources would not help the business and may leave the director vulnerable also. As well as the business failing the director may end up with serious financial problems – which also means more creditors go unpaid.
If you manage a business which needs additional funding, especially to discharge historical debts, then you should carefully consider what you do. Seek professional advice to review your business – it may be insolvent. Perhaps investment isn’t what is needed. Perhaps you should downsize and reduce your staff resource and costs. Maybe because of changed circumstances your business can now only afford to repay a portion of its debt. As a better alternative to simply shutting down the business (better for staff, better for creditors, better for you) a Company Voluntary Arrangement (CVA) may be a solution for a limited company or if the enterprise operates as a sole trader, an Individual Voluntary Arrangement (IVA).
Insolvency practitioners are available to help you in business. Borrowing or using your personal resources whilst admirable may not always be in anybody’s interest. So before you become another statistic, consider how an insolvency practitioner can help you.