Awareness of different types of business finance is 'very low' among small and medium-sized enterprises, research finds.

Awareness of different types of business finance is 'very low' among small and medium-sized enterprises (SMEs), research finds.

Most small companies continue to rely on traditional bank overdrafts or personal sources of cash for additional funding, according to a study by information services company Experian.

The 300-strong survey, conducted to understand how and why businesses have sought additional capital, finds that alternative sources of finance are yet to have made a significant impact.

Of the various forms of business funding options, crowdfunding is the least well-known among respondents, with 69 per cent never having heard of it. Meanwhile, angel investment, business cash advances and government grants also score poorly in terms of awareness.

Some 42 per cent of respondents say that they would approach their personal bank when asked about the first thing they do when thinking about additional financing. This is followed by 18 per cent who say they would speak to their accountant.

Few of the respondents state that they would shop around: just one in ten say they would try all the major banks first, 7 per cent report they would search the internet for the best deals and just 6 per cent reveal they would speak to a broker.

The findings also reveal that 60 per cent of respondents have sought some form of extra funding in the last 12 months and the need to alleviate short-term cash flow problems is by far the biggest reason for applying for extra cash (58 per cent).

Max Firth, UK managing director for Experian’s business information services division says, 'When looking for finance, the first port of call for SMEs is their bank. However, a commercial loan is unlikely to be appropriate for their specific needs, especially if the need is short term, such as alleviating cash flow issues.

'For many SMEs, it may make more sense to consider invoice finance options to alleviate the stress of collecting payments, especially where large new deals are won and they are already dealing with increased outgoings to ensure delivery of an order.'

See also: Small businesses miss out on alternative finance through lack of information