Reference: Found hereSmall businesses are increasingly turning to alternative finance options amid rising scrutiny into the over-reliance on personal guarantees for business loans, new insight has revealed.
In December 2023, the FSB (Federation of Small Businesses) lodged a super-complaint with the FCA concerning lending practices, particularly regarding the onerous requirement by many lenders of personal guarantees from individuals to support loans to SMEs.
Wider industry concerns ⁘ including from the House of Commons Treasury Committee, LSB (Lending Standards Board), as well as worries from small business owners about this common requirement ⁘ are further highlighting the topic.
New insights from Joe Morley, Business Finance Manager at Funding Options by Tide , revealed that many small business owners are not aware of all the financing solutions available to them ⁘ beyond traditional loans and credit cards ⁘ with many not even aware of what a personal guarantee involves.
A personal guarantee refers to an individual's promise to repay finance if their business can't. In other words, if the business can't repay the debt for whatever reason (liquidation, insolvency, etc.), the business owner/director will be held personally liable.
A personal guarantee of payment minimises the level of risk to the lender by providing an extra layer of protection – in most cases, property is used as the main asset in this guarantee, so homes can be at risk should there be no other way to repay the debt.
Morley said, "Here at Funding Options, we aim to break down funding barriers for our customers. Our process helps business owners to understand their finance eligibility, depending on their specific circumstances and needs, and we empower businesses with certainty through pre-approved offers.
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