The growth potential of the UK economy is being put at risk by a generation of “debt shy” entrepreneurs who are unwilling to borrow money or give control of their businesses to outsiders, according to new research.

ft.com UK economy. ‘Debt shy’ entrepreneurs put UK growth at risk

A lack of trust in high street banks has convinced many British business founders to avoid taking out loans. Instead, they rely on their own resources to provide growth capital, a UK-wide study commissioned by the Institute of Chartered Accountants of Scotland found.

Analysis of the 9,000 companies interviewed for the government’s small business survey revealed a generation of entrepreneurs reluctant to take on debt.

These “discouraged borrowers” will not start taking on debt unless they are convinced of the necessity to do so to expand their operations, the authors concluded.

“To date, government initiatives have been about controlling the supply of finance,” said Ross Brown, a management professor at St Andrews university and co-author of the report. “What we are saying is the demand for credit has to be stimulated because [small business] mindsets are quite firmly fixed.”

Policy initiatives should be targeted at small and medium-sized businesses with growth potential and focus more on the supply of long-term finance and debt rather than equity finance, Mr Brown added.

The focus for banks needed to be increasing competition and other systemic problems that can impede access to finance for SMEs.

Encouraging companies ….

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