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Business owners injecting own cash

Two in five small business owners are still resorting to their personal credit cards to fund their businesses but 12% will turn to peer-to-peer (P2P) borrowing this year.

Almost 300,000 SME owners will use their credit cards to raise cash with 150,000 raiding personal savings this year, according to research by P2P lender rebuildingsociety.com.

Another 150,000 will borrow from friends or families while 100,000 will sell or mortgage property.

Research found 56% of owners have invested their own cash in their business to finance debt or support growth in the past year.

The average amount was around £22,700 though the median amount is less than £10,000.

Daniel Rajkumar, managing director of rebuildingsociety.com said: "Using credit cards to fund businesses is not necessarily a bad idea if owners have plans to repay debts and clearly SME owners are willing to do whatever it takes to ensure their businesses stay on track. More often than not though, it is a quick fix."

Mr Rajkumar said credit cards typically charged 29.9% for cash advances, and went on: "If more people had heard of P2P lending, we believe more would use it."

The P2P industry last week reported a 121% rise in lending in 2013, and the Treasury is consulting on extending Isa tax breaks to loan-based and investment-based crowdfunding.

Mr Rajkumar said: "With regulation of the P2P market in effect from 1 April and plans to include the asset class in Isas, this could be the start of a huge upsurge in lending volumes."

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