In 2024, a growing number of small and medium-sized enterprise (SME) decision-makers in the UK are turning to personal finances to support business growth. Recent research from Shawbrook reveals that nearly three-quarters (71%) of SME leaders have tapped into personal funds for their business, a notable increase from 68% in 2023. This trend underscores both the financial challenges SMEs face and their determination to secure growth in a challenging economic environment.

The Rise in Personal Financing for SMEs

The trend of SMEs leaning on personal financial resources to aid business growth is steadily rising. Among surveyed SME leaders, more than half (54%) reported using personal credit cards, and a similar number (53%) turned to personal savings. Personal loans have also become a common method, with 39% of SME leaders resorting to this avenue. Compared to last year, the number of SME leaders using personal savings has surged by 15%, personal credit cards by 13%, and personal loans by 8%.

This trend extends even to larger SMEs. Among businesses with 100-249 employees, 55% of decision-makers reported using personal credit cards, 49% relied on personal savings, and 42% took out personal loans. This reliance on personal finance highlights the financial pressures SME leaders feel across the board, regardless of business size.

Increased Interest in Alternative Financing Solutions

Despite the significant use of personal finance, SME leaders are also exploring alternative finance options. According to Shawbrook’s research, 78% of SMEs are now turning to alternative financial products, up from 73% in 2023. These alternative finance methods are helping SMEs diversify their funding strategies and reduce their dependency on personal finances.

Among these solutions, invoice finance has seen a notable increase, with 56% of decision-makers now opting for it, up from 48% last year. Other popular methods include asset finance, chosen by 47% of SME leaders (up from 43%), and asset-based loans, which saw a small uptick to 39%. Commercial loan facilities also remain a valuable resource, with 45% of decision-makers now utilizing them, up from 44% in 2023. This shift indicates that SMEs are actively seeking and adopting various financing options that cater to their unique needs.

Rising Costs Add to Financial Pressures on SMEs

The rising cost of business operations remains a top concern for SME leaders. Nearly three-quarters (73%) of business leaders report being worried about increasing operational costs, a figure that is consistent with last year’s findings, where 69% of SME leaders voiced similar concerns. These rising costs, coupled with uncertain economic conditions, create a difficult landscape for SME growth and profitability.

Given these pressures, many SME leaders are now forced to evaluate all possible funding sources, balancing the risk of personal financing with the advantages of alternative solutions. Shawbrook’s findings reveal that SMEs are feeling the need to creatively source funds as they navigate these financial headwinds.

Expert Perspective: The Role of Specialist Lenders in SME Financing

Neil Rudge, Chief Banking Officer for Commercial at Shawbrook, highlighted both the challenges and positive trends within the SME financing landscape. He acknowledged the growing number of SMEs dipping into personal finances as concerning but noted the encouraging increase in the use of alternative finance.

“SMEs are undoubtedly the backbone of the UK economy, making up 99.9% of all businesses in the UK, accounting for three-fifths of employment and around half of turnover in the private sector,” Rudge explained. “As the government looks to get the economy back on track, it’s crucial that this cohort is not left behind.”

Rudge also pointed to the value of specialist finance providers in supporting SMEs. “The uptick in alternative finance usage is an indicator that we’re heading in the right direction,” he noted. “SME finance can be sophisticated and complex, so working with a specialist lender that has the experience and resources to offer a high level of service and bespoke packages will ensure businesses can find the right finance for their plans.”

Conclusion: Financing Flexibility as the Key to SME Growth

As more SME leaders rely on personal resources to fund business growth, the importance of alternative finance continues to grow. With operational costs on the rise and economic uncertainty lingering, SMEs are left balancing personal financial risks against the opportunities that alternative financing solutions can offer.

In this evolving landscape, SMEs may increasingly benefit from the expertise of specialist lenders who can provide tailored solutions that align with their goals. Access to such resources may ultimately be key in helping UK SMEs not only sustain themselves but thrive in the coming years.

For SME decision-makers, adopting a diversified approach to financing could be the best strategy to ensure growth while managing financial risks—a balance that could determine their success in the competitive UK market.