Finance for Small and Medium-Sized Enterprises - DTI Home Page

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Finance for Small and Medium-Sized Enterprises: A Report on the 2004 UK Survey of SME Finances Table 4.2: Types of Finance Sought in the Last 3 Years TYPE OF FINANCE NUMBER IN PERCENTAGE SAMPLE OF POPULATION ERROR MARGIN ± Overdraft 430 32.0% 4.9% Grant 341 14.5% 2.9% Term loan/mortgage 620 40.0% 5.7% Asset finance 708 38.8% 5.5% Asset-based finance 76 2.1% 1.2% Equity finance 115 6.8% 2.7% Base: All businesses who sought finance N p Notes: = 1,594,619 (Unweighted N = 1443) 1. There is no necessity that the reported percentages add up to 100% since some businesses may have sought more than one type of finance. Comment As in SBS (2003), term loans are, collectively, the most popular type of new finance. However, our analysis ranks asset finance as the second most popular new finance, with overdrafts third, whereas in SBS (2003) this ranking is reversed. Grants, equity finance and asset-based finance are ranked, in our survey, in the same order of popularity as in SBS (2003). The average amounts sought, across these types of finance, are reported in the followin g table. The amount of asset-based finance sought is not reported due to the small samples involved. Table 4. 3: Amounts of Finance Sought in the Last 3 Years by Type of Finance TYPE O F FINANCE NUMBER IN AMOUNT (£) ERROR SAMPLE MARGIN ± Overdraft 430 40,555 21,843 Grant 341 32,681 14,447 Term loan/mortgage 620 75,592 18,838 Asset finance 708 46,363 44,614 Equity finance 112 134,262 116,036 Base: All businesses which sought finance N p = 1,594,619 (Unweighted N = 1443) 4.1 Start up finance It was shown previously that start-ups have an above average chance of having sought finance. This is unsurprising since most new businesses require some type of funding to get up and running. However, start-ups may face particular problems in accessing external finance due to lack of a track record and the absence of tangible assets. This may lead these businesses to rely heavily on personal sources of finance. 61
Finance for Small and Medium-Sized Enterprises: A Report on the 2004 UK Survey of SME Finances To conclude this section, we therefore look at evidence on the sources of start-up finance in the following table Table 4.1.1: Sources of Finance Used to Establish the Business POPULATION PERCENTAGE ERROR MARGIN± N P = 251,759 Personal Savings 69.4% 11.0% Mortgage on Home 6.5% 5.7% Credit Card 3.3% 4.7% Gift from friends/family 0.8% 1.6% Bank Loan 20.4% 12.0% Friends/family loan 12.7% 8.4% Friends/family equity 1.3% 2.5% Venture Capitalists 0.3% 0.6% Grant/subsidized loan 3.1% 2.7% Factoring 0.3% 0.4% Overdraft 1.6% 2.2% Other 3.5% 3.5% None 6.0% 6.5% Base: Businesses aged less than 2 years N p = 251,759 (Unweighted N = 147) These results show that: • Well over 2 in 3 start-ups used personal savings • 1 in 5 used a bank loan • 1 in 8 used a loan from friends or family as part of the firm’s initial finances. • The use of equity finance is very small with investors being mainly family and friends. • Notably over 1 in 20 start-ups claimed to have used no finance to establish their business. The principal source of start-up finance is reported in the following chart: 62
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