Surveys (for example, Real World†11.13) show that many small businesses use credit cards to help finance their activities. Why might they do this?

Data from Real world 11.13

Small business funding

The most important source of external finance, in terms of the number of small businesses that use it, is that which is provided by financing institutions (banks and credit card businesses), as the bar chart in Figure†11.13 shows.

Figure 11.13

Leasing and HP finance is also a major source. It is striking what a large proportion of small businesses drew on credit card funding (36 per cent). Presumably, this is used mainly to finance working capital and the debt is paid off before interest becomes payable.

Although venture capital is undoubtedly an important source of finance for some businesses, overall it is relatively insignificant.

Note that the bars in Figure†11.13 represent the percentage of businesses that are financed partly by that source. The percentages do not represent the proportion of each source of finance that make up the total funding of the typical small business at the survey date.