Small firms turn to 'friends and family' for finance

Date: 20th February 2009

A plunge in the amount of cash banks are willing to lend has seen small businesses turn to friends and family for finance.

That's according to an investigation by Close Invoice Finance, part of the merchant banker Close Brothers, which found that confidence in bank lending has plummeted in the last year.

The group's research revealed that only six per cent of smaller companies - such as sole traders and partnerships - believe their bank will be willing to extend their credit into this year.

Chief executive of the group, David Thompson, commented that the relationship between banks and small firms had "collapsed, with severe repercussions for the sector as a whole".

"Owners are relying on friends and family for financial support, placing immense pressure on these most precious relationships," he said.

Mr Thompson concluded that small firms needed "to be far more creative in how they source working capital".

According to the Federation of Small Businesses, increasing levels of redundancy will lead to a rise in the number of British sole traders as people look to retrain and go it alone, the Financial Times reported.