Problems with Personal Guarantees…

Guarantee I don’t like ’em… never have done… and I think they stand in the way of decent companies accessing the external capital they need to grow.

There’s an example of the problems they cause in another post I did : The Problems with Banks… their attitude to security

So why does just about every lender insist on PGs?

I wish I knew…

I suspect it’s because they can.

They’ll claim it’s to take account of the risk involved in lending to an owner managed business… by ‘lifting the corporate veil’… because ‘if the owners aren’t prepared to stand behind their company why should we lend to it’…

BUT

… the interest rate on any borrowing is supposed to reflect the risk of lending…  so the risk premium is baked in… the riskier the company, the higher the rate…

So why don’t lenders let the rate really take the strain and offer borrowers a choice ? … say 4% over base with a PG… 6% over base without… (a ~ 50% premium for the extra risk)

I know which one the growth companies I work with would choose…

Which begs another question…

Where are the genuine innovators in the Fintech space?

Lots of clever people with a lot of smart money busy building sites & offerings… but I don’t see too much innovation… let alone disruption…

Incremental innovation aplenty… but if they want quality companies with growth prospects to take on the external capital that’ll make growth less painful & more fun then the Fintech guys will have to take a punt on being more disruptive… by being more responsive to the needs of their target market…

Say… offering money with have two buttons on the site… choice is a wonderful thing… one PG low-Rate… one no-PG high-Rate… and watch which one gets pressed…

But at the very least all these PG loving lenders should let you know you can get insurance against the chance your PGs will be called in…

PGI Cover from Purbeck covering up to 80% of your PG is available

One of the better-kept secrets…

Again I don’t why…