Speaking at the NACFB Expo today, independent economic adviser Dr Nicola Headlam referred to the current use of personal guarantees in SME business lending as “ridiculous” and recommended the practice be done away with.

In a discussion entitled ‘Back to Business’, with a panel also including Shona Davies of BVA BDRC, Kieran Jones from the NAFCB, and Gary Cain from Leonard Curtis, Headlam agreed that while the scheme encouraged entrepreneurs to “have some skin in the game,” in practice it limited the ability for good ideas to flourish among anyone who does not function “out of a detached house in the South of England.”

Jones noted that, at the least, while banks are not “desperate to take people’s houses,” brokers must be sure to explain the realities of a personal guarantee, and not leave it as an afterthought at the end of their conversation with SME clients.

For Headlam, though, the issue remains that the practice of asking for personal guarantees stifled the chance to foster “good ideas, no matter your postcode or your starting point in life.”

She added that the current system feeds into the idea that there cannot be a great entrepreneurial idea with some kind of money – either through personal property or, for example, the ‘bank of mum and dad’ – present from the start.

The panel also discussed the wider issue that, according to Davies, eight in 10 SMEs would rather “grow slower than borrow to grow,” and an overall lack of awareness and understanding of the lending options available to them, with a potential 42,000 firms in the UK missing opportunities for up to 20% growth as a result.

To this, Headlam said brokers must “get out there,” while Cain added: “This is a contact sport, get face-to-face with people.”

According to NACFB statistics, one in three resolved cases of SME finance were a matter of the broker finding an alternative solution to the one the client originally enquired about, showing the scope for education of borrowers around products otherwise not well known.