January 23, 2012
Small business owners in the UK are increasingly putting their own homes in danger by offering them as guarantees for business loans.
Confidence in banks is still at an all-time low and small business owners have had to turn to their personal funds to boost their businesses. As a result, 12% of small business owners in the UK have had to put their own homes on the line, while a survey from a major personal asset lender also showed that another 33% would consider using their home as a guarantee if they couldn't get any other kind of finance.
Continuing economic woes have greatly affected issues such as cash flow, late payments from customers, tax bills and staff wages. And the situation is so dire that the number of small business owners considering a secured loan to get the capital is at the same level as those considering using an unsecured loan (38%) and an overdraft facility from their bank (33%).
"Using your family home as a guarantee for a loan is a huge step for a small business owner and can be risky in this uncertain economic climate but it seems many feel they have no other choice,” said Paul Aitken, Chief Executive of borro, who conducted the research.
“It's surprising to see that as many small business owners would consider applying for a secured loan as would apply for an unsecured loan or an overdraft, a sign that as banks continue to make it hard to access unsecured lending facilities, so those that require property as security become the next thing to turn to."
Nearly a quarter of all small businesses have missed out on opportunities to expand their business due to lack of finance, added Mr Aitken, who believes it is not surprising that over two thirds of SMEs feel banks should relax their lending criteria.
"Loans and overdrafts from a bank aren't the only options open to small businesses today,” he added. “A quarter of small businesses (26%) said they have used or would consider using their personal assets and possessions such as cars, jewellery, fine art and antiques to secure a loan for their business."
