Family businesses need to improve knowledge on non-traditional sources of capital

Non-traditional sources of capital could help family businesses to finance their growth strategies; however, more than four in 10 don’t have enough knowledge about them in order to use them.

Research carried out by Campden Wealth, in partnership with KKR, looks at how family businesses are funding their growth. From private equity firms to alternative finance, these non-traditional sources are gaining interest around the world, but what do family businesses think of them?

One family business executive who participated in the research says, “I like the idea of them [alternative finance providers] being able to bring knowledge and connections that can help our business. I would like this type of relationship more than, for instance, debt financing with a bank, with no alignment.”

The data shows that this sentiment is shared by others. Forty percent of the family businesses surveyed believe that non-traditional/alternative sources of financing provide more than just capital. The expertise that these providers are likely to bring, in addition to the capital, is a factor in choosing capital providers for these families. However, the use of these non-traditional providers is still low compared with traditional providers – 22% use alternative sources of finance, while 21% use private equity firms. In comparison, 85% of family businesses use regional or local corporate banks. Why could this be?

A perceived knowledge gap could be one of the major factors. The research reveals that 42% admit they don’t know enough about non-traditional sources. Closing this knowledge gap will have great benefits for family businesses. They will be able to better understand the different options that are open to them when they are planning their future growth strategies.

Families themselves are fearful of restricted access to traditional finance in the future. Sixty-three percent of participating families pointed to the tighter regulation of banks as the main challenge for businesses looking to obtain finance. With this in mind, closing the knowledge gap should be a priority for family businesses, as it will mean that they are more aware of what other capital providers can offer them and whether it is suitable for their business. 

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