Small Business Owners Are Saying “No Thanks” to Personal Guarantees and Going the Other Way
Picture this: you own a bustling café, your dream‑tasting pastries, and a bank that keeps asking, “What’s the deal if we can’t collect the loan?” In December 2023, the Federation of Small Businesses (FSB) pushed back hard, filing a “super‑complaint” with the FCA over lenders’ relentless demand for personal guarantees. Now, more and more SMEs are exploring alternatives – and it’s stirring conversation from Parliament to the Lending Standards Board (LSB).
What is a Personal Guarantee?
A personal guarantee is basically the business owner’s solemn promise: “If this venture hits a rough patch, I’ll step in and pay out of pocket.” Picture a homeowner pledging their house as collateral; if the company can’t repay, the owner’s personal assets – maybe that tidy sofa or shiny car – are at risk. While it tricks lenders into lower interest rates and faster approvals, it also puts personal finances on a roller‑coaster – credit scores could dip, and your personal life gets a bit gusty.
Joe Morley, the Finance Wizard at Funding Options
Joe Morley insists that many entrepreneurs are clueless about the variety of financing that goes beyond the usual loan‑and‑credit‑card duo. “We’re here to smash those funding barriers,” he says, adding that the platform maps each business to its perfect fit – whether it’s a quick, one‑off loan, or a more flexible, no guarantee alternative.
In his own words:
- “We help you see all the options out there.
- We make sure you’re pre‑approved and ready to go, so you’re not hunting for strangers in the dark.
- We’re not just about the familiar loans; we’re about what works best for you.
Joe admits that while most customers understand what a guarantee is, a good chunk of them avoid it – either because they don’t want to risk their personal assets or simply don’t trust the paperwork. This omission can accidentally be a blessing in disguise.
Why Alternative Finance Is the New Trend
With the FSB’s super‑complaint echoing through the Treasury Committee and beyond, the broader UK economy feels the ripple. Lenders’ insistence on PGs is cramping the growth of small businesses; each guarantee can dent a company’s credit appetite and stall future expansion.
Here’s what’s standing out:
- Unsecured loans: No personal or property collateral required. Great for those who want to keep their finances separate.
- Asset‑based financing: Leverage equipment or real estate but without a personal guarantee.
- Merchant Cash Advances (MCAs): The fastest-growing option, based on your daily card sales – “ahead of the curve” without a guarantee.
- Invoice Financing: Turn unpaid invoices into instant working capital.
Meanwhile, the old friend “overdrafts” (especially the ones outside banks) are falling out of favor as SMEs find more flexible alternatives. The trend is unmistakable: small businesses are shifting to no guarantee routes, particularly tempting when the sky is full of uncertainties.
Takeaway for Small Business Owners
Before you sign on the dotted line as a guarantor, learning the legal basics is key. A default can dent your personal credit score; your house or car might end up on the line. But guess what? You’re not locked into that fate. Knowing the market is full of alternatives means you can keep the business growth engine running without a personal guarantee pacing it.
If the idea of a personal guarantee feels like a late‑night horror movie, consider the human‑friendly, flexible pathways that can keep your business decisions in the business realm. Stay informed, keep humor in hand, and remember – it’s your venture, not a personal debt sponsorship.
