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In January 2018, the Financial Conduct Authority ("FCA") opened a consultation on the role of the Financial Ombudsman Service (“FOS”) and whether its services should be extended to incorporate more SMEs and personal guarantors.

There’s no let-up in lender demand for personal guarantees as security for small business loans.  So faced with this Hobson’s choice and a future that’s predictably uncertain, what are the pros and cons of signing that guarantee? 

When considering your business finance options as a company Director, you might be asked to provide a personal guarantee as an assurance for a business loan or another source of financing on credit. This puts you into a direct relationship with the lender, who could legitimately pursue you personally if your company becomes insolvent. But is this a risk that you think is worth taking?

Most small business owners would prefer not to sign a personal guarantee, but when it makes the difference between securing finance and having the door shut in your face what’s a small business owner to do?

If signing the guarantee is the only route to finance, the first priority for any savvy small business owner is a thorough check on what they’re potentially getting into.  Even a thriving business can go through uncertain times and if things do go wrong, that guarantee could mean loss of personal assets including home, possible bankruptcy, tarnished credit rating and damaged future career, not to mention a severe strain on family relationships.

After building a business over many years it could just take six weeks to lose the lot if you have signed a Personal Guarantee.