THE BLOG

Turning to the Bank of Friends & Family to Fund Your Start-up

14/02/2014 15:06 GMT | Updated 16/04/2014 10:59 BST

In the last year alone one in five small business owners has turned to the bank of 'friends and family' for start-up capital, and almost three quarters launched their new business ventures with working capital of £2,000 or less.

Of the 5,000 small business owners polled, 76 per cent said they had to use their own personal savings as working capital, while 13 per cent said that redundancy money provided their start-up funds.

Only 3 per cent of small business owners polled said they were able to secure a bank loan to get their business off the ground, this highlighted the banks' reluctance to lend to riskier start-ups. As a result, business owners have been forced to look elsewhere for funding to get their ventures off the ground.

The number of people starting businesses has risen significantly in the past few years. PeoplePerHour alone has seen the number of new small businesses registering on the site more than double in the past 12 months. This increase is due in part to the economic climate, but also because more and more people are making the life choice of working for themselves.

When small business owners were asked what the biggest obstacles they faced when starting out, more than a third said struggling to maintain cash flow was one of their chief concerns, while a quarter cited access to funding as the main problem. One in seven said the lack of business support and advice was an issue, while 6 per cent admitted government red tape was holding them back, and 5 per cent had problems recruiting skilled staff.

The challenge of launching a new business is no better illustrated than by the number of business owners who are having to rely on friends and family to raise start-up capital, largely because of the void left by the banks shutting up shop.

It helps that it's never been easier or cheaper to start a business from scratch, opening up the self employed route to a whole new generation of aspiring entrepreneurs. Businesses are being launched from kitchen tables across the country, as the online revolution has knocked down the barriers to entry.

Businesses still face the same issues though - top of the list being a failure to get to grips with cash flow. It is essential that business owners follow sensible business practices from day one, to ensure that they don't over stretch themselves.

This includes not taking on too many full time staff in their desire to expand quickly, putting

undue stress on the company's financial position. A growing number of small businesses are now recognising the benefits of having a flexible workforce, tapping into a global pool of skilled talent through online freelancer platforms - hiring people when and if they need them.

Starting a business from scratch is no longer the daunting prospect it once was, and that should encourage a lot more people to give it a go.