Small business owners are turning away from bank financing, preferring to use private or external funds to invest in their businesses. The latest figures from Small Medium Enterprise (SME) Finance Monitor, released today, show that 33% of small business owners look to external sources of finance, and 30% use their own money.

The data indicates that small business owners are increasingly confident about the state of the economy, with 20% stating that the current climate was a barrier to growth, down from 32% last year.

More than half of the small business owners surveyed (51%) said that they planned to remain free of banking restraints, and 48% had been identified as “permanent non-borrowers”.

Phil Orford MBE, chief executive of the Forum for Private Business, said, “In 2011, 51% of small business used external finance and 30% were seen as ‘permanent non-borrowers’. Today’s figures show a clear reversal in the number of business looking to the banks and other external sources moving forward.”

However, he warned that small business should not be so cautious about borrowing money from financial institutions. “Although the continuing mistrust of financial institutions is understandable, it is vital that small businesses are able to take the opportunities that are presented to them and external finance should have a significant role to play in helping businesses fully realise their growth potential,” he said.