New research has highlighted a worrying lack of knowledge about loan guarantees among small business owners. SME finance provider Wirefund commissioned the research hat shows that while 55% of SMEs don’t understand personal guarantees in business loans, 79% say they are discouraged to take out loans that may put themselves at serious risk.
Wirefund asked 510 senior SME decision makers questions relating to the terms and conditions of loans – specifically personal guarantees – to determine whether SMEs understood this very common practice, which is tucked away in the small print of most business loans.
Among the key findings from Wirefund’s report :
- 55% of SME business owners do not know what a personal guarantee is, with 21% believing it only means that business owners would pay money back on time to the best of their ability
- 61% do not realise how far-reaching the liabilities associated with personal guarantees are (in that they relate to personal assets, not just business assets)
- Only 8% realise how inescapable personal guarantees are and that high-street banks always require them, with 20% thinking high street banks never or rarely require a director to put their own assets down as collateral
- 79% stated they had not been put off a business loan because it included a personal guarantee. However, shockingly 55% of those SME owners did not understand what a personal guarantee was
‘Opaque and outdated’
Amit Sankey, CEO and founder of Wirefund commented: “Personal guarantees are opaque and outdated tools, misunderstood and misaligned with the needs of British business. Our research shows very clearly that SME owners do not know what they are and are taking on huge, hidden risk as a result.
“We can do small business finance without personal guarantees and we should, because if enforced, they can have devastating effects. I have seen it first-hand. Business finance shouldn’t ruin lives, it should be building lives, businesses and communities. SMEs are the growth engine of our economy – it’s time finance was properly on their side.”