February 18, 2011
Nearly half of all small-business owners use a credit card to boost their firm’s cashflow, new research has found, writes Clare Bullock.
The survey of more than 700 UK small-business owners and financial directors by Hilton–Baird Financial Solutions found that 44 per cent use credit cards as working capital, despite the high interest rates charged.
However, Institute of Chartered Accountants in England & Wales head of SME issues, Clive Lewis, said that credit card use was acceptable in the short–term, provided debt was kept under control.
“If you do accumulate some debt, run it down as quickly as you can, but it’s a good source of finance when a business faces difficulties, or cannot access other types of finance,” said Lewis.
Director of small business Hollywood Tower conference centre, Laura McCrum, said: “A couple of years ago I tried to get a business loan, but was turned down by my bank, so I had to take out a personal loan to see me through a sticky period.
“It’s the same with my personal credit card,” she added. “I use it all the time to help with my cashflow – for example, if people don’t pay on time, or if it’s coming up to the VAT return and I don’t have enough in the bank to cover it. It’s not an ideal situation, but I pay off as much as I can every month.”
Lewis said there were funding alternatives that small firms may not have considered. “An increasing source of finance is credit unions, which may be a good alternative if you have a bad credit history,” he said. “You pay a certain amount per month, and then after approximately three months they will advance you a loan, subject to conditions, that you can use in the business.”