The UK’s fastest growing small businesses are backed by private equity houses, despite initial difficulties in raising capital, a new report has found.
The research, which surveyed the experiences of bosses of small business with revenues up to £20m that had raised debt and equity finance in the last five years, found that it took them longer to raise capital than expected. However, 42% of those that secured equity saw revenue growth, with 69% experiencing growth over a quarter, compared to an average UK GDP growth of 0.7% in the third quarter of 2010.
On average it took firms four to six months to find a suitable equity provider while 55% of bosses took under three months to secure bank finance. Some 36% of directors surveyed met with more than eight equity providers while 15% of bosses saw five to six banks.
David Hall managing director of YFM Equity Partners, which conducted the research, said: “The results of this survey overwhelmingly show that businesses use equity as a catalyst for growth as well as to repair balance sheets. With credit markets still constrained, it may be the most viable financing option for those businesses looking to kick-start their long-term growth and development.
“Small business entrepreneurs will have a greater need for equity in 2011 with the threat of rising interest rates and inflation.”
In preparing their companies for growth, small companies used equity for a broader range of their needs with 54% of equity-backed and 22% of bank-backed firms using their funding to develop new products.
© Crimson Business. Ltd 2011