Survey reveals businesses finding it tough; willing to borrow from family and friends

A vast majority of Australian small business owners are having trouble securing finance or capital to start or grow their business, a new survey has found.

From the wreckage of a world-wide financial crisis triggered by COVID-19 pandemic and resulting job losses, a new movement of business start-ups and entrepreneurialism is set to emerge.

The survey, conducted by Australian peer-to-peer lending platform, Credi, found that most SMEs are now increasingly willing to seek out alternate methods of financing their businesses, outside the traditional means of banks and lending institutions.

Of the 1,036 people surveyed, 631 of whom were business owners, nearly 89% reported having trouble securing finance or capital to start or grow their business.

Additionally, 81% of respondents said they had considered asking a family member or friend for a personal or business loan. 

A vast majority – upwards of 90% – said they were more likely to take a loan from someone they knew, based on the current pressure being felt across all aspects of the economy. That same number, 90%, said that they were more likely to take a loan from friends or family given Australia's post-COVID pressures.

It seems Australians are also happy to consider lending, too, with 56% of all respondents stating they would consider low-interest loans to friends or family of between $1000 and $10,000 USD.

77.9% said they would charge interest; among those who would, 36.1% of them would charge less than 3%, and 29.5% said they would charge between 3-5% interest, considerably lower than traditional lenders.

Responses illustrate that borrowing - and lending - between friends and family for small business and entrepreneurial start-ups was becoming an avenue that an increasing number of SMEs are exploring. 

Credi Founder and CEO, Tim Dean, said the survey results presented not only a bleak picture when it comes to the more traditional options with which borrowers have been faced, but illuminated an increasingly popular option – borrowing from family or friends – that up until recently many business owners would not have considered.

“Just like during the Global Financial Crisis in 2008-09, we’re seeing a boom in small businesses being established, which is great for would-be entrepreneurs, and great for the economy,” Dean explained.

“Exploring the option of borrowing from a family member or friend is something that many should consider, given the greater flexibility you’re likely to get from them, as opposed to a bank.

“The pre-existing relationship can certainly make the transaction more straight-forward. 

“However, unless the loan is properly documented and managed, there can be relationship damage and financial losses incurred.” 

Mr Dean said that lending platforms such as Credi were the best option for family and friends-based loan arrangements to be formalised, to mitigate the risk of damage being done to relationships based on misunderstandings about repayment schedules and legal obligations.

“It’s important that in an economic climate like the one we’re all currently experiencing, SMEs don’t have their options limited when it comes to securing finance,” he said.

“It’s equally important that any financial arrangements they make with a family member or a friend to boost their business’ capital are properly documented and ensure that all parties’ best interests are looked after and secured.”

Credi is the world’s premier lending management platform for friends, family and their businesses. To find out more, visit www.credi.com