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Finance issues remain

Start-ups ‘still depend on family and credit cards’

Money - own picMany start-up firms are still depending on family, friends and credit cards to provide them with support in their early years, according to an Institute of Directors survey.

The IoD has called on the UK government to make the EIS and SEIS tax relief schemes easier to use for small-stakes investors and encourage more people to invest in growing companies.

The first ever survey of the IoD 99 network – a group of more than 650 entrepreneurs under the age of 35, running businesses in every part of the country and every sector of the economy – has confirmed that finding skilled employees and accessing scale-up finance are the most important issues for Britain’s start-ups.

Two-fifths (42%) of the entrepreneurs surveyed said they have trouble hiring people with the right skills, and 39% cite difficulty accessing finance as a potential barrier to growth.

More than half (53%) said that money from family members had been instrumental in getting their business off the ground, while 56% had used personal unsecured finance, like credit cards, and a further 45% had used money from friends.

The IoD has called for government to open up the ‘equity economy’ to make it easier for savers to invest in young companies and turn Britain’s fledgling start-ups into scale-ups. The business group has also warned politicians against imposing arbitrary restrictions on the UK immigration system, which will make it harder for growing firms to bring in skilled workers from around the world.

The survey of 122 members of the IoD 99 network – entrepreneurs running companies across the UK in every section of the economy, also showed:

  • Six in ten (61%) young entrepreneurs were in full-time work when they started their own business
  • One in five (21%) said the primary reason for starting their business was to have a ‘positive social impact’, 22% said they wanted to work for themselves and one-third (36%) said they wanted to build a successful company
  • Difficulty hiring skilled employees was ranked as the top barrier to growth, cited by 42% of entrepreneurs, followed by trouble accessing finance (39%), the high cost of finance (33%), business taxes (29%) and personal taxes (26%)
  • While money from family, friends, and unsecured loans are the most important sources of finance in an entrepreneurs’ early days, private equity, bank and non-bank debt along with private and public sector grants are all seen as important sources of scale-up finance.

 Jimmy McLoughlin, deputy head of policy at the IoD, said: “Finding people with the right skills, and tapping into the right mix of finance will be the biggest factors in achieving scale-up success. For start-ups, overcoming these obstacles can be the difference between success and failure.

“The last few years have seen exciting developments in alternative finance. Businesses can access more sources of capital than ever before and innovations like crowdfunding and peer-to-peer lending are quickly becoming mainstream options.

“Entrepreneurs see them playing a big role over the next decade. Regulation cannot stand in the way of this growing demand. We should strip back the layers of complexity which currently stand in the way of individuals investing through schemes like the Enterprise and Seed Enterprise Investment Scheme (EIS/SEIS) to give more people across the country a stake in the success of British start-ups.”

 The full recommendations can be found here: Opening the Equity Economy.

Full results

 Q. When you first become involved with your IoD 99 business, were you … 

Employed full-time

61%

Employed part-time

8%

Student full-time

7%

Student part-time

3%

Other (including self-employed,

freelance etc.)

23%

Unemployed / not in education

7%

Total

122

 Q. Which of the following were the most important factors in your decision to start your company?

Most important

2nd most important

3rd most important

Any

top 3

Build a successful business

36%

27%

12%

75%

Desire to work for myself

22%

16%

27%

65%

Positive social impact

21%

7%

6%

34%

Create a successful product/service

15%

23%

14%

52%

Financial reward

4%

14%

23%

41%

Personal status & reputation

1%

9%

9%

20%

Praise & recognition

0%

2%

5%

7%

Total

107

Q. How important or unimportant are the following factors for your business?

Very
important

Important

Unimportant

Very unimportant

Net important

Digital infrastructure

57%

26%

12%

3%

83%

Access to skilled employees

52%

31%

14%

0%

83%

Personal taxes

40%

39%

19%

0%

79%

Access to finance

39%

34%

24%

3%

72%

Business taxes

38%

44%

16%

1%

82%

Cost of labour

33%

46%

15%

2%

79%

Regulatory and legal environment

24%

43%

24%

5%

67%

Transport infrastructure

17%

28%

29%

18%

45%

Finding/cost of commercial property

12%

28%

38%

17%

40%

Finding/cost of residential property

1%

10%

39%

27%

11%

Total

103

Q. Which of the following factors have a negative impact on your business?

Access to skilled employees

42%

Access to finance

39%

Cost of labour

33%

Business taxes

29%

Personal taxes

26%

Finding/cost of commercial property

26%

Digital infrastructure

24%

Regulatory and legal environment

20%

Finding/cost of residential property

7%

Transport infrastructure

5%

Total

85

Q. Over the past five years, how important or unimportant have the following forms of finance been for your business?

Very important

Important

Unimportant

Very unimportant

Net important

Not used

Family

31%

22%

7%

1%

53%

39%

Personal unsecured loans (e.g. credit card, overdraft)

16%

20%

16%

4%

36%

44%

Other private equity (e.g. venture capital)

16%

6%

12%

4%

22%

62%

Government grants

15%

19%

11%

4%

34%

52%

Non-government grants

13%

16%

12%

2%

29%

57%

Friends

12%

16%

12%

6%

27%

55%

Government loans (e.g. Startup Loans)

10%

10%

15%

4%

21%

60%

Bank loans

9%

10%

21%

6%

18%

54%

Non-bank loans (e.g. peer-to-peer lending)

8%

11%

16%

5%

19%

60%

Personal secured loans (e.g. against a house or other asset)

2%

4%

18%

3%

6%

72%

Equity crowdfunding

3%

5%

14%

8%

9%

70%

Total

98

Q. Over the next 10 years, how important or unimportant do you think the following forms of finance will be for your business?

Very important

Important

Unimportant

Very unimportant

Net important

Will not use

Other private equity (e.g. venture capital)

33%

18%

18%

2%

51%

29%

Government grants

23%

30%

29%

0%

53%

17%

Non-government grants

23%

24%

24%

2%

47%

26%

Equity crowdfunding

21%

17%

20%

10%

38%

33%

Bank loans

18%

30%

20%

5%

47%

27%

Government loans (e.g. Startup Loans)

14%

21%

24%

5%

35%

36%

Family

13%

18%

24%

6%

31%

38%

Non-bank loans (e.g. peer-to-peer lending)

12%

32%

17%

9%

44%

31%

Personal unsecured loans (e.g. credit card, overdraft)

11%

18%

24%

9%

29%

38%

Friends

10%

7%

30%

9%

17%

45%

Personal secured loans (e.g. against a house or other asset)

3%

10%

23%

11%

13%

53%

Total

96

 

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