The leaders of smaller firms are ignorant of the funding options available to them outside of the mainstream, new research suggests.
Instead, according to figures from Experian, the majority of small companies rely on bank overdrafts or personal funds to finance their business.
Using delayed payments to suppliers and asking friends and family for financial assistance are also popular methods of coping with costs.
Alternative arrangements, such as 'crowd-funding', whereby private companies sell small equity stakes to a large number of shareholders, are far less well known. A significant 70 per cent of respondents to the survey were unaware of this particular form of finance.
It follows a recent study by the Federation of Small Businesses (FSB) which found that many small firms are struggling to find funding, with 42 per cent of respondents stating that they were turned town when they applied for a loan over the last quarter.
John Walker, national chairman of the FSB, commented: "It is frustrating that bank finance is still difficult to get. No matter what is said about demand, more than 40pc of applicants have been refused in each quarter this year. This has to change if growth aspirations are to be met."
The results of the Experian study suggest that small businesses increase their awareness and scope of different finance options if they are to improve their access to funding. For example, just one in ten business owners said that they would shop around among all of the high street banks in order to find finance and just six per cent reported that they would consult a broker.
Like the FSB study, the Experian survey also revealed a high demand for funding. A significant 60 per cent of respondents to the latter said that they had sought out additional funding over the past year, largely in order to tackle short-term cash shortages.
However, Max Firth, the managing director of Experian's business information division, warned that certain financing methods, such as delaying payments to suppliers, could create further financial difficulties in the future.
"A poor payment history could eventually affect their credit rating, their attractiveness to customers and their ability to negotiate good deals with suppliers," he told the Telegraph.
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