Nearly four in every ten small businesses have been refused credit in their first two years of life, leaving start-up companies too dependent on personal savings, credit cards and family loans.
A survey found that a quarter of SMEs relied on the savings of their founders for growth capital.
A survey by Close Brothers found that 37 per cent of small and medium sized companies had been turned down for credit within two years of opening their doors and that a quarter of SMEs relied on the savings of their founders for growth capital.
Close Brothers, which specialises in lending to smaller companies, said high street banks often lacked the capability to provide the type of advice new businesses needed, leading firms to fund themselves in ways that ultimately constricted their growth.
Only 25 per cent of micro-SMEs, those with fewer than ten employees, had been able to get a bank loan, despite the importance of these businesses to the economy. About four million British workers are employed by these types of firm.
“SMEs have not always found it easy to secure the right funding to sustain or grow their businesses. Given the huge contribution these companies make to the labour market, failure to support their growth is a risk to the UK economy,” said Adrian Sainsbury, managing director of Close Brothers’ banking division.
While bank loans are often difficult to come by, overdrafts are a common source of financing for many smaller businesses. Close Brothers said that more than a quarter of micro-SMEs had been funded in this way at some point, something the bank said was not ideal given the lack of security it provided to a business.