UK businesses are too reliant on “traditional” bank finance and should consider equity investments if they are to grow, claims a report by the CBI.

The study suggests that just three per cent of growing businesses have taken on equity finance – where investors buy a slice of a company in the hope it will become more valuable over time – but that two-thirds that have done so recorded a positive experience.

Half of SMEs rely on loans, while 36 per cent use overdrafts, said the study. Britain lags behind the EU on equity finance, with seven per cent of businesses taking it on – more than double the proportion in the UK.

“Equity finance is one of the most effective ways for small and medium-sized firms to access investment capital and there are plenty of investors who take a minority stake,” said CBI policy director Katja Hall.

Many business owners fear a loss of control if they give away part-ownership, while others think it would force them to take a more aggressive stance on short-term growth and profitability.

Ms Hall said the government should offer tax breaks for investors who leave their money in a business for a long period of time.