Personal guarantees risk holding back the growth the economy needs, the Federation of Small Businesses (FSB) has warned.
Research by the FSB shows that 60% of limited company directors would borrow to grow their business – if they did not have to put hard-earned assets like savings or their houses on the line.
By contrast, only 13% would go ahead if a personal guarantee is required.
The FSB says the practice is now widespread, with 78% of directors who applied for finance being asked for a personal guarantee. Faced with this, a quarter decided not to take up finance at all.
The FSB is now calling on the government to close the Financial Conduct Authority (FCA) loophole that leaves these loans unregulated and unsupervised by banks.
It says that without action, would-be entrepreneurs could be deterred from starting up, with personal risk outweighing ambition and ideas left unrealised.
Tina McKenzie, Policy Chair of the FSB, said:
'Personal guarantees should never be the default setting – they must be a last resort, used with care and absolutely necessary. If we are serious about building a climate where small firms can thrive and new ideas can take root, we need to rein in their overuse.
'Otherwise, the speed of small business growth will slow to a snail's pace at a time we need it the most, and we risk turning away a wealth of entrepreneurial talent.'
Internet link: FSB