Struggling businesses should think twice about taking out loans for survival, especially where Personal Guarantees (“PG’s”) are involved

The ability for small businesses to secure finance has become significantly more challenging in recent years. According to a recent analysis by Funding Xchange, businesses seeking loans are now carrying more than double the debt-to-turnover ratio compared to pre-pandemic levels. This has made securing additional funding difficult, particularly for working capital needs, with rejection rates and Personal Guarantee risks increasing as lenders tighten their requirements.

Many businesses, faced with dwindling cash reserves and financial strain, are no longer borrowing for growth but for survival. Traditional bank lending to small and medium-sized enterprises (SMEs) has fallen dramatically – £90 billion below historic trends – according to Allica Bank. As UK businesses contend with higher base interest rates than their European counterparts, loan affordability is now more difficult than ever.

In this article we look at the risks to struggling business owners of using an Alternative Lender, drawing on anecdotal experience, and suggests that a full business viability review is the first port of call if the mainstream banks have refused finance. This reduces the risk of a struggling business taking out a loan from an Alternative Lender that typically carries a very stringent PG (as the price for getting the loan) that gets called in when liquidation occurs, leading to significant personal finance issues for the director(s) involved, and even potentially bankruptcy.

The article covers:

• Some of our recent experiences talking to directors who have suffered when a PG has been called in.
• The temptation – and risks – of Alternative Lending.
• Why directors must think twice with Personal Guarantees.
• How Insolvency Practitioners can help.

The above was taken from a recent Antony Batty & Co. newsletter, to read the full PG article click here