SMEs are signing up to livelihood threatening loan conditions, ignorantly, a report exposes today. The research by Wirefund, an SME loan provider, reveals that the majority of SME owners have no idea what a personal guarantee is, despite it being a requirement from banks and many alternative finance providers when lending to businesses.
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.
The research paints a shocking picture: there is a broad and deep misunderstanding of what personal guarantees are and the impact they can have on the SME community.
The key findings from Wirefund’s report include:
The report highlights personal guarantees are not fit for purpose. Business loans are built on a dangerous, misunderstood practice. Not only is there a severe underestimation of personal risk among SME owners, but personal guarantees do not match the typical asset ownership of today’s entrepreneurs either. The report goes onto explain how SME loans can be provided without personal guarantees, with smarter, more relevant risk management techniques.
Amit Sankey, CEO and founder of Wirefund commented: “Personal guarantees are opaque and outdated tools, misunderstood and misaligned with the needs of British business.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.”