Small firms deserting the banks in hunt for finance

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TWO thirds of small business owners believe they will have to seek alternative sources of funding in 2012 as they can no longer rely on banks for finance.

This is despite Government and bank initiatives to promote lending for small businesses.

In a survey of 1,000 small business owners carried out by Huddlebuy.co.uk, the business to business daily deals site, 65 per cent said they will look outside the banking sector for finance.

The research showed that younger entrepreneurs and business owners are the most disillusioned with bank financing.

Three quarters of 18-34 year-old entrepreneurs who were polled said they would have no option but to seek alternative funding options in 2012.

Some 70 per cent of 35-54 year-olds believe they will have to do the same.

Saurav Chopra, chief executive of Huddlebuy.co.uk, said: “Bank lending for UK small businesses has gone from bad to worse. The coalition Government and banks talk a good game but talk is all it is. The reality is that businesses know they can no longer rely on banks.”

Craig Hamer, joint managing director of Brighouse-based Dews Motor Group and one of the businessmen in the survey, said: “The banks are now the last place many businesses think about for investment and funding.

“They’re not lending like they used to and the situation’s only going to get worse in the coming months.”

Mr Chopra said that over the past two years, UK entrepreneurs have proved far more innovative than the banking sector in creating a range of services to help small business funding.

“At least entrepreneurs are fighting back to help fellow businesses find the finance they need,” he said.

UK entrepreneurial initiatives include Funding Circle, which involves peer to peer lending for businesses, and Market Invoice, an online marketplace where companies selectively auction their invoices.

Huddlebuy collected data from 1,000 small business owners and entrepreneurs in December 2011.

The research presents a far worse picture than the latest findings from insurance giant RSA and the Warwick Business School, which found that 12 per cent of small and medium sized enterprises have experienced difficulties obtaining finance over the past year.

Smaller businesses are increasingly looking to give away stakes in their companies in return for cash, as a “Dragons’ Den mentality” emerges, according to the report.

The problems in raising cash will cause concern because smaller companies are seen as the lifeblood of the economy, employing around 20 million people, and are at the forefront of the Government’s strategy for fuelling growth.