Small businesses have a "blinkered approach" to debt

New research from entrepreneur think tank, the Tenon Forum, reveals that nearly a fifth (17 per cent) of UK owner-managers have no idea how much money their business owes.

Close to half (47 per cent) of UK owner-managers admit their business currently owes money – four in 10 (39 per cent) took out loans to grow the business, 15 per cent say their business had not performed as expected and nine per cent blame poor decisions which have lost the firm money.

However, it seems that many entrepreneurs are comfortable with a high level of debt – with 15 per cent prepared to accept a high level of borrowing if it enables long term business growth and a quarter stating they are very open-minded about borrowing funds.

While some are maximising their debts to grow the business, other SMEs are more worried about their borrowing levels with a fifth (20 per cent) saying they feel their debts are having a negative impact on their business. A sixth (16 per cent) of owner-managers never let their business borrow money and 12 per cent consider being in debt their worst fear for the business.

Across the UK, businesses in the North are most concerned by business debt with almost a quarter (23 per cent) claiming they never let their business borrow money and 15 per cent of Southern SMEs stating this is their worst fear for the business.

Carl Jackson, Head of Tenon Recovery, commented: "In the current fragile economic climate, it’s especially important that entrepreneurs know their balance sheet inside out. Borrowing can bring considerable business benefits but debts must be kept under control and within the financial limits of the company."

“No matter their level of debt, entrepreneurs should put contingency plans in place to ensure these debts remain manageable (and the company solvent) if the economy takes a nosedive."

The research also reveals more than a quarter (28 per cent) of entrepreneurs have moderate or high levels of debt in their personal lives but a quarter state that business borrowings have made them more cautious when it comes to personal borrowings.