Entrepreneurs are setting up businesses on a shoe string despite government investment schemes offering generous tax breaks.
Although 1100 start-ups have taken advantage of the Seed Enterprise Investment Scheme (SEIS) to raise £82 million, thousands of entrepreneurs are turning to savings and credit cards to fund their ideas.
Besides SEIS, other popular fund raising options are crowdfunding, where a number of investors pool small sums to support a start-up or angel investments, from professional business people who mainly take a stake in growing businesses.
However, new research from Barclays Bank shows many entrepreneurs have more modest financial requirements.
Most self-finance their new firms – with 84% relying on their own savings as start-up and working capital.
Credit card borrowing
Self-belief also drives 10% to finance their business on credit cards and 11% borrow cash from family and friends.
The study disclosed starting a new business does not necessarily need a pile of cash.
Almost half (49%) of businesses get going on just £2,000, while 8% need no money to open for trading.
Richard Phelps, managing director of Barclays Wealth and Investment Management, said:
“Entrepreneurs move fast and are keen to grasp any openings in the market by their nature. Tracking the number of start-ups is a good indicator of the health of the economy and watching trends on how businesses develop is a worthwhile task.”
Barclays also looked at where businesses are starting – with London coming out as a hotspot for new companies.
Nationwide, the number of active companies increased 3.4% in the first half of 2013, from 2.73 million at the end of December to 2.82 million by the start of July.
The survey also found a big increase in the number of high-growth SMEs – businesses typically with between 50 and 250 employees and a turnover of between £2.8 million and £11.2 million.
Around 20% of these companies fit the definition of high-growth, after showing an increase in turnover of at least a third in the past three years and 10% year-on-year expansion for two of those three years.
“Everyone is eager to see entrepreneurs starting new businesses,” said a spokesman. “Britain is open for business despite difficult economic circumstances. New firms opening in a wide range of markets and sectors is encouraging for the economy and the outlook for jobs.
“Many businesses seem to start with little or no investment, but entrepreneurs have a number of options to look for funding which they do not seem to be fully exploiting.”