Marvin OnumonuThe Federation of Small Businesses (FSB) highlighted the challenges self-employed individuals face in accessing mortgages, finance, and pensions.
Research found that 25% of entrepreneurs said being self-employed made it harder to get a mortgage, with those who do often facing higher rates.
Furthermore, 16% reported using capital meant for business growth to pay mortgages.
Many entrepreneurs resorted to bank overdrafts (17%), credit cards (16%), and financial help from family and friends (9%) to stay afloat or expand.
The FSB reported that personal guarantees for business loans are discouraging growth, as some lenders demand them for small amounts.
They are urging the Financial Conduct Authority (FCA) to regulate personal guarantees and reduce their use.
The research found that 37% of entrepreneurs are not saving for a pension, primarily due to cashflow problems.
Recommendations include standardising mortgage documentation for the self-employed and considering reduced mortgage rates for those with income protection insurance.
They also suggest the FCA include personal guarantees in their Consumer Duty and raise awareness of mixed equity and debt financing through institutions like the British Business Bank.
FSB emphasises the importance of maintaining Entrepreneurs’ Relief at 14% to support retirement savings and business investments.
Tina McKenzie, policy chair of the FSB, said: “People who decide to take a leap into the unknown by embracing entrepreneurship are taking on many risks – not least that of no longer being able to rely on a secure income.
“Income volatility adds additional barriers to accessing finance products, such as mortgages and external finance for their business, and makes saving for a pension harder.
“The impact of this should be minimised to encourage more people to take the leap without worrying that they will be locked out of common financial milestones as a result.”
McKenzie added: “The dream of owning your own home is firmly entrenched in our national culture, while we all aspire to a comfortable retirement – but these things should not be a privilege reserved for those in conventional employment.
“Keeping Business Asset Disposal Relief at 14 per cent could help entrepreneurs avoid erosion of their retirement funds.”
She said: “As the Government develops its Small Business Strategy for publication later this year, it must cater to the needs of the self-employed.
“Getting this right will enable entrepreneurs to do what they do best – innovate, adapt, and create.
“By solving the finance conundrum too many entrepreneurs find themselves in, we can help to unlock the growth we need to get the economy on track.”
