1.6m Brits lend money to friends and family to plug £4bn funding shortfall

MORE than 1.6m Brits have lent money to a loved one to help them start or grow a business, as it is revealed that UK banks turn down 26 per cent of business funding applications.

According to new research by ThinCats, at least £7.2bn has been lent by family and friends, with an average loan size of £4,479. This coincides with new data from the Treasury which found that in 2015, 324,000 business funding applications were turned down by British banks, leaving small- and medium-sized businesses with an annual funding shortage of almost £4bn.

Read more: SMEs struggle to access finance as banks don’t meet their needs

“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,” said Kevin Caley (pictured), founder and chairman of ThinCats. “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.”

Read more: Opportunity for P2P as banks tighten business lending