More business owners using personal finances to invest


As we all know, the struggle to save and purchase property in Britain for young people has led to many families offering to lend the funds to their children to help them onto the property ladder.

Recent research has shown over £5bn was lent in 2016 to their children by the bank of mum and dad, but it looks like these handouts are also extending to young entrepreneurs who are unable to secure a bank loan to start their businesses.

Fresh findings from Opus Energy have revealed one in four small businesses with a turnover of less than £250,000 have used personal funds, including the bank of friends and family, to invest into their business. This contrasts with bigger businesses with a turnover of £2-3 million, who are largely avoiding this route altogether.

Bank of me

Personal finances, i.e. money saved, inherited or gifted from the family ‘bank’ is becoming a popular choice when faced with the challenges of applying for a bank loan with little credit history, turnover and financial history. According to the research, lenders reject an average of 100,000 small business loan applications each year, which contributes to a deficit of around £4bn per year.

Unattractive rates push borrowers away further – with stiff conditions and hefty re-payments hampering the future of their small business – making owners feel as though they have little choice but to borrow from the personal kitty. But is that really the case?

More suitable options

Under the new bank referral scheme, businesses turned away from banks are given the option to be referred to different methods of finance, such as invoice finance, peer-to peer lending and crowdfunding.

The invoice finance industry recently enjoyed a record quarter, with lending to businesses soaring above £20 billion. Meanwhile, crowdfunding websites have seen at least £7.2 billion has been lent over the web, and climbing, helping to fill the void in the current lending gap.

Research from Thincats, a peer-to-peer lending website, has also found that nearly 1.6 million people in the UK have borrowed money from their savings or family and friends to invest in their business.

Furthermore, according to Thincats, start-ups are borrowing an average of £4,479 from friends and family, in around 1.6 million cases in the UK. Bypassing the banks altogether seems to be commonplace for start-ups now, due to the limited success rates and availability of funds after the financial crisis of 2008.

So, with friends and family becoming a popular choice – do many start-ups consider the ramifications of that investment later down the line?

Things to consider

When considering borrowing money from personal finances or friends and family, it’s important to remember to protect yourself and your business in the future. If you are currently considering this, here are 6 tips to avoid potential conflict:

Although an inability to successfully obtain a loan from a bank could be seen as a barrier to entry for many start-ups, it is important to note that the greater flexibility of the small business finance market is enabling many to source and adapt to alternative methods of finance – producing innovative and resourceful business unafraid of change and ready for success.

Have you borrowed money from family or friends, or used your own finances to invest in your business? We’d love to hear from you. You can leave a comment in the box below.


Some of the funders we work with

  • Shawbrook Business Credit
  • Optimum Finance
  • Peak Cashflow
  • Lloyds Bank Commercial Finance
  • Royal Bank of Scotland
  • Trade Finance Partners
  • Merchant Money
  • IGF Invoice Finance
  • iwoca
  • PNC Business Credit
  • ABN AMRO Commercial Finance
  • Team Factors
  • Berkeley Trade Finance Ltd
  • Regency Factors
  • Leumi ABL
  • inFund
  • Davenham Trade Finance
  • Time Finance
  • 4Syte
  • Close Brothers Invoice Finance
  • Giant
  • Boost Capital
  • Investec
  • Creative Capital
  • Davenham Asset Finance
  • Nucleus Commercial Finance
  • MaxCap
  • Metro Bank SME Finance
  • Roma Finance
  • Pulse Cashflow Finance
  • Aldermore Invoice Finance
  • Barclays
  • Sonovate
  • Woodsford Tradebridge
  • Secure Trust Bank
  • MarketFinance
  • Skipton Business Finance
  • Ultimate Finance Group
  • InvoCap
  • Santander Corporate & Commercial
  • Haydock Finance Ltd
  • FIBR Tech Limited
  • Calverton Finance
  • Asset Advantage
  • Bibby Financial Services
  • Partnership Invoice Finance

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