Don’t risk the house to finance more capital

QAMY business is expanding and orders are increasing, but to meet those contracts I need much more working capital. However, the only organisations willing to lend to me are all demanding personal guarantees, putting my home on the line; something my family is not happy about. What are my options? THE personal wealth of directors should not be used to guarantee payment. Either the business is sound enough to lend to, or it is not, so we never ask for personal guarantees.

From my point of view, you have four options that do not require personal guarantees.

The first is a straight mortgage on a building you own freehold.

If you default, the lender can only get hold of that building. However, if you lose the building, you may lose your business.

The second is to see what assets you have that you can effectively sell and then lease back; such as vehicles, major plant or buildings.

This will give you an immediate injection of cash, but increase your monthly costs; which is the case with a loan anyway.

The third is equity. If your business is profitable and financially sound, you should be able to find an investor to inject capital in return for a piece of the company. Obviously, the problem with that is you relinquish some control and will be under increased scrutiny. Some investors may even demand a majority stake and/or a seat on the board.

The fourth option, and the one I personally would go with, is peer-to-peer lending. We provide borrowers with fixed-term loans, of a minimum of £100,000, funded through the ArchOver platform by individual and institutional investors who wish to lend to UK businesses. It is secured by taking a first floating charge over the accounts receivable and the borrower takes out credit insurance with ArchOver jointly insured. We call this our ‘Secured and Insured‘ model.

There are no personal guarantees required, so family harmony is also secured.