£7.2 Billion Lent Through Friends and Family to Plug UK Business Funding Gap

hand offering money – £7.2 Billion Lent Through Friends and Family to Plug UK Business Funding GapUK small business owners are increasingly turning to friends and loved ones for support, as the constrained lending environment in the UK continues to pile on pressure.

A recent study cited in Business Matters reveals that the average amount being lent in this way stands at £4,479, with the total figure amounting to at least £7.2 billion.

The research indicates that parents of small business owners are behind much of the family lending trend, with people over the age of 55 being almost three times as likely to lend to any age group below them. One in 20 have actually forwarded such loans.

The rise in this type of lending, the report says, is suggestive of the continuing financial pressure being piled onto entrepreneurial businesses by banks. 36% of the 324,000 loan applications made by SMEs in 2015 were turned down by banks, creating a funding shortage of close to £4 billion.

Along with friends and family lending, the alternative finance sector is helping to fill the gap, with P2P business lending platforms in particular cited as being strong channels for funding, having lent £3.4 billion to UK SMEs since 2014.

This figure is expected to continue to rise following a new government matchmaking initiative launched last month, which will require banks to direct borrowers towards alternative lenders if they are unable to provide the funds themselves.  

Founder and Chairman of P2P lending platform ThinCats Kevin Caley comments:

“Since the financial crisis in 2008, SMEs have had a pretty torrid time sourcing finance from traditional avenues, so it’s inevitable that some business owners are turning to friends and family for help. However, this sort of lending comes with all sorts of personal and emotional baggage, and it’s important that anyone in this position knows there is a healthy alternative finance market out there, with greater flexibility to lend when the banks will not.

“The good news is, this tightening of lending from banks has encouraged us to become a nation of peer to peer lenders, giving everyday investors the opportunity to make healthy returns through the emergent alternative finance sector. Over 160,000 people have already lent money through a peer to peer platform, and based on the 1.6 million already doing so through loved ones, we could well see many more.”

Tags: , , , , , , , , , , , , , , , , , ,