For owners of small and medium enterprises, or SMEs as they’re commonly known, managing capital – or even just coming up with capital to manage – can be a constant challenge. Many small business owners and entrepreneurs live life constantly on the edge, having put all of their hopes and dreams into their business, and perpetually fearing that they’ll run out of money, and that will be the end of their dream. Accordingly some may turn to less than savoury means to rescue their enterprises.

A rather disturbing report from Weslayan Bank, released in late April 2016, found that more than three-quarters (78 percent) of SMEs surveyed indicated that they were too risk-averse to seek a loan. A mere two percent said that they obtain external financing for their business on a regular basis. But the really worrying revelation is that only 75 percent of SMEs said they would rule out illegal activity to help their businesses in some way. This suggests that one in four business owners might consider crime or gambling to prop up their companies. In addition just over half of small business owners over the age of 29 declared that they would never break the law on behalf of their company.

If you are the owner of a SME, particularly if your business is pretty new, you likely don’t have a banker-in-waiting, at the ready to loan you whatever you need at a moment’s notice. As a result, you find yourself seeking out other sources that will lend you a relatively small amount and get you the cash you need when you need it: now. But you really do not have to resort to dodgy activities in order to keep your business – and your dream – alive.

Who do you borrow from?

There are, by necessity, significant differences between the way you fund your business and the way you fund your personal affairs. For one thing, business funding is quite often on a much larger scale than personal. And given the greater complexity in calculating and collecting business taxes than personal income taxes, it follows that there will be more comprehensive regulations regarding business finances than personal. However, that doesn’t necessarily preclude the use of personal loans as a means of getting the cash you need for some business expenses, as there exist numerous circumstances in which a personal loan or even a payday loan might be your best option.

For some businesses, the answer might be in taking out a personal loan sufficient to cover the immediate expense. As a rule, the approval and processing time for a personal loan is shorter than the time required for a business loan, but just as with interest rates, fees, and terms, there is no universal standard, and you will need to do your homework to find the lender that will lend you the money you need at a price you can afford, and in time to resolve the situation that created the need in the first place. There are even some instances where the best answer to an acute capital shortfall is to take out a payday or other short-term loan. The interest rate and fees will be higher than on other more conventional types of loans, but if the alternative is losing a customer or even your entire business, the extra expense can seem inconsequential.

Life happens, but there are legitimate ways to deal with it

There is an old saying that life is what happens while you’re making plans, but it would be just as appropriate to replace the word life with business. There has yet to be a business operation that functions exactly according to the plans made for it. It seems that in every business, irregular, unplanned expenses arise on a regular basis. Equipment might be in need of repair or upgrade, the cost of materials or labour on a given project might spike for some reason, or an emergency might occur that must be handled immediately, at an expense that would severely deplete even a minimum acceptable cash flow level. And while some larger businesses have enough liquid capital or pre-arranged credit lines to cover such incidentals, for many small businesses, that financial safety net simply doesn’t exist. Consequently the owners find themselves dashing about in search of the cash to cover the unexpected expenses that pop up, always at the worst possible time.

So although it may be disturbing, the aforementioned Weslayan Bank report isn’t completely surprising after all. To begin with, small businesses have become accustomed to a lack of available traditional bank funding following the 2008 financial crisis. But one of the biggest reasons small business owners would consider turning to risky practices, the bank said, is that entrepreneurs have trouble separating their business and personal lives. They might be more likely to turn to consumer credit cards, home equity, or family members to seek business capital – and when those sources dry up and they get even deeper into trouble, they might consider turning to more desperate measures.

The truth, however, is that with the economy in recovery, the SME financing climate has changed. Many entrepreneurs are suffering from a simple lack of understanding of the options now available to them.

In any case there are numerous legitimate ways to fund your business ventures, whether you choose to avail yourself of a personal loan or a more conventional business loan. The information on the Gov.UK site has a wealth of information about starting and funding a business, including a finance finder tool to see which government schemes you may be eligible for. Don’t make any major financial decisions without consulting with a qualified adviser, of course – and above all, don’t risk your business by engaging in even riskier business.

Drawing (and not Crossing) the Line Between Your Business and Personal Funding

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