Businesses using personal credit to finance companies

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More small business owners are turning to personal credit cards to finance their companies, and a quarter admitted to pouring their own savings into their business, new research shows.

Massey University's Centre for Small and Medium Enterprise Research survey of 1808 small and medium-sized firms during October and November last year showed more than three-quarters - 78 per cent - were using credit cards.

This was an increase of 11 per cent on the previous year and made personal credit cards the most widely used form of business finance alongside trade credits.

Centre director Professor David Deakins said the survey was conducted to find out how businesses were coping with the recession.


The findings reflected the "fragile nature of the recovery as the recession continues with businesses not wanting or not able to access a bank loan".

"For a business owner this is a relatively flexible way to finance cash flow and meet working capital requirements.

"There is a risk they may get bad debt - particularly in times of recession - but if it helps cash flow over a temporary period it could be a good solution."

The annual BusinesSMEasure survey is a yearly longitudinal study of small and medium-sized firms in New Zealand.

It also found that a quarter of businesses surveyed had invested personal savings into their companies last year. However, this has remained fairly stable - 27 per cent in 2009 compared to 25 per cent in 2010.

Professor Deakins said firms that were not growing had stopped investing personal savings into their business, indicating that some had exhausted that option of finance.

The study also found that companies were still feeling the effects of the recession, with only 14 per cent reporting they had not yet been affected, compared with 27 per cent the previous year.

Professor Deakins said this clearly indicated the depth of the recession and the prolonged effect it has had on businesses.

- Susie Nordqvist