£4bn start-up funding gap bridged by friends and family

More than 1.6 million people have given money to a close friend or family member, giving them the financial support to start or grow their business, according to new research from peer-to-peer lending platform, ThinCats.

With many entrepreneurs struggling to gain access to finance, loved ones are being called upon to provide the necessary support, lending £4,479 at a time on average.

It is estimated that £7.2bn has exchanged hands between friends and family, with entrepreneurs increasingly forced to rely on social networks to solve the lending gap.

Those aged 55 and above are said to be three times as likely to have made a financial contribution to a friend or family member; indicating that middle-aged parents have both the means and understanding to provide financial assistance and give their children a leg up in business.

Last year, high street banks declined more than a quarter (26%) of the 324,000 loan applications made by SMEs, with annual funding shortages for start-ups said to amount to £4bn.

Kevin Caley, Founder and Chairman of ThinCats, said: “Since the financial crisis in 2008, SMEs have had a pretty torrid time sourcing finance from traditional avenues, so it’s inevitable that some business owners are turning to friends and family for help.

“However, this sort of lending comes with all sorts of personal and emotional baggage, and it’s important that anyone in this position knows there is a healthy alternative finance market out there, with greater flexibility to lend when the banks will not.

“The good news is, this tightening of lending from banks has encouraged us to become a nation of peer to peer lenders, giving everyday investors the opportunity to make healthy returns through the emergent alternative finance sector.

“Over 160,000 people have already lent money through a peer to peer platform, and based on the 1.6 million already doing so through loved ones, we could well see many more.”

Date published 7 Dec 2016 | Last updated 7 Dec 2016