Small and medium sized businesses are continuing to rely on their cash reserves to see them safely through the recession and finance their future growth, research from Aldermore reveals.

The research, which was conducted amongst 300 SME firms throughout the country, confirms that nearly two fifths (38%) of SMEs are depending on cash reserves to fund their future growth ambitions.

Of the remainder, 12% say they will turn to a bank loan, 9% to an overdraft, 10% will use leasing or hire purchase, whilst 7% will use factoring and invoice discounting, with 4% citing funding by a commercial mortgage. Some 8% of business owners say they will fund their future growth using their own cash and 10% say they were not planning to finance future growth at the moment.

Damon Walford, managing director of Aldermore Invoice Finance, said: “Given the continuing reluctance of big banks to lend to small businesses it’s understandable that business owners have been forced to rely on their cash reserves to fund their future growth. But as cash reserves become depleted, so business owners will need to consider alternative forms of funding, such as invoice finance and asset finance.”

Aldermore’s findings are supported by data released recently (26th Oct 2012) by International Trade Monitor, which says that a lack of confidence has led more than a fifth of all SMEs to consider alternative sources of funding. It says the top three sources are asset based finance (44%), factoring (31%) and personal savings (26%).

Walford added: “Although SMEs have relied heavily on bank loans and overdrafts in the past, many business owners have realised the vulnerability of having all their eggs in one basket and are now considering diversifying their funding sources. SMEs have more choice than they may realise; it’s worth consulting an accountant or commercial finance adviser to discover just what’s available.”