SME owners are risking home repossession when they put their properties up as loan collateral. Image courtesy of: sxc.hu
More than one in 10 (12 percent) of UK small business owners put their homes on the line in order to keep their business afloat in 2011.
This is according to research from
borro.co.uk, a new online asset lender, which also revealed a third of small businesses (33 percent) would consider using their homes as loan collateral if they were unable to secure finance in the face of financial difficulties such as staff wages or cash flow issues.
The number of SMEs considering a secured loan is growing at the same rate as those considering an unsecured loan (38 percent) or a bank overdraft facility (33 percent). This is perhaps evidence of a shift in SME attitudes towards alternative methods of finance, as banks tighten lending criteria because of economic uncertainty.
Paul Aitken, CEO of borro, comments: "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. 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."
A quarter (24 percent) of the 300 SME owners and directors questioned in the survey believe they have missed growth opportunities due to a lack of finance, while over two-thirds (67 percent) would like to see banks relax their lending criteria.
Financing is increasingly coming from closer to home, which well over half (57 percent) of business owners turning to personal savings to keep their business afloat, with a further 17 percent turning to friends and family for help.
Aitken added: "Loans and overdrafts from a bank aren't the only options open to small businesses today. The lending marketing has opened right up. Our analysis shows that small business owners are looking further afield to get the funding they need. A quarter of small businesses (26 percent) 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. The majority of borro's customers are now SME owners and we have seen a huge increase in this trend over the last year."