January 20, 2012 - Anonymous
More than one in ten small-business owners were forced to use their family home to secure a loan last year, research from personal asset lender Borro has found.
The poll of 300 business owners found that 12 per cent had put their home on the line in 2011 in order to get access to funds, while a third admitted they would use their house as security if they were struggling with cashflow, couldn’t pay wages or needed to settle a tax bill.
More than half of small-business owners (57 per cent) said that they had already ploughed personal funds such as savings into their business.
Borro chief executive Paul Aitken warned that using a family home as a guarantee in the current economic climate was risky. “It’s a huge step for a small-business owner, but it seems many feel they have no other choice,” he said.
However, independent financial adviser Yvonne Goodwin, managing director of YGWM, said using a home as security could result in lower interest rates on a loan, compared with unsecured funding.
“It’s not a surprise that firms are opting to use property as a guarantee,” she said. “For the last three years, banks have been unwilling to lend without some form of security. It doesn’t mean that things are getting more difficult for small firms.
“If you’ve got a viable business plan, and are confident about the firm’s future, using your house can actually make sense because you may well be able to negotiate attractive terms.”
Another funding option open was for business owners to sell a share of their company to an investor to raise capital, added Goodwin.