New small firms avoid overdrafts

NEW small firms are now twice as likely to avoid borrowing from banks when they set up for business as before the recession, according to research commissioned by National Westminster Bank, writes John Willcock.

While almost all start-ups, 94 per cent, require some form of finance at the outset, 67 per cent now fund their business from personal resources compared with 37 per cent in 1988.

The results from the survey of 1,000 small firms suggest that years of high interest rates and record small business failures have put firms off relying on overdrafts with banks.

'There is a far greater tendency by small businesses starting up to rely on their savings and ploughing back profits,' said a spokesman for National Westminster, which itself is has pounds 10.5bn on loan to small business customers.

Of the money raised by small busi nesses from outside the firm, 21 per cent will now come from banks, compared with 41 per cent in 1988.

The recession has also turned firms away from borrowing as a means to expansion, Natwest said.