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Establishing a successful recruitment process and clear written employment contracts for new employees can have a major impact on your business.

Every business needs to be aware of its obligations under minimum wage and equal pay laws, as well as recent pensions auto-enrolment changes.

You must comply with legal restrictions on employees' working hours and time off, or risk claims, enforcement action and even prosecution.

The right employment policies are an essential part of effective staff management. Make sure any policy is clear and well communicated to employees.

While sick employees need to be treated fairly, you need to ensure that 'sickness' is not being used as cover for unauthorised absence.

Most pregnant employees are entitled to maternity leave and maternity pay, while new fathers are entitled to paternity leave and paternity pay.

As well as undermining morale, illegal discrimination can lead to workplace grievances. Employee discrimination is covered by the Equality Act 2010.

Home, remote and lone workers are becoming increasingly commonplace. Key issues include communication and how to manage and motivate people remotely.

The right approach to consulting with and providing information to your employees can improve employee motivation and performance.

Disciplinary and grievance issues can be a major burden to employers. Putting in place and following the right procedures is essential.

Following the right dismissal and redundancy procedures helps protect your business and minimise the risk of a legal dispute at tribunal.

Employment tribunal claims are a worrying prospect for any employer. A tribunal case is a no-win situation – even if the claim is unjustified.

Small firms steer clear of business loans with personal guarantees

27 February 2024

New research has found that many business owners are reluctant to take out loans to help grow their business because of the risk to their personal assets, including their homes.

New research conducted by Purbeck Personal Guarantee Insurance has revealed a worrying lack of understanding of personal guarantees in the context of business loans amongst small businesses. The survey has found that personal guarantees can place a lot of stress on a director and deter them from seeking finance, with 13% of small business owners polled reporting that they have backed out of a loan due to the demand for a personal guarantee.

The survey shows that there is widespread confusion about personal guarantees among business owners. Six in ten (60%) of small business owners surveyed either have no idea or are unsure what a personal guarantee is - despite the fact that 30% of respondents said they plan to take on new finance in 2024.

Once it was explained how personal guarantees work, 24% incorrectly thought the current minimum threshold for a loan to require a personal guarantee is £10,000. There is currently no minimum threshold for a personal guarantee to be requested by a lender. However, only 29% of the directors and owners of small businesses surveyed want personal guarantees to be banned for small business loans. Most said a threshold should be set between £10,000 and £20,000.

"Business owners must be pragmatic. While it's easy to empathise with the sentiment that personal guarantees should be banned on loans to small businesses, it is understandable that alternative lenders will need some assurance of repayment if the business fails. Fundamentally, small business owners need to understand the risk mitigation strategies they can take before signing a personal guarantee. These include sharing the guarantee with a co-director, guaranteeing part rather than the whole of the loan or taking personal guarantee insurance." Todd Davison, md, Purbeck Personal Guarantee Insurance.

Personal guarantees are "straitjacket" on small firms

The Federation of Small Businesses (FSB) has issued a super-complaint to the Financial Conduct Authority (FCA) to call out banks' widespread use of harsh personal guarantees which can force small business owners to put their homes on the line in order to take out a small loan.

The FSB says that personal guarantees can be a "straitjacket" on business growth, forcing entrepreneurs to put their homes or other assets on the line when taking out finance - even small loans that are easy to repay.

"Put yourself in the shoes of an entrepreneur who's created a promising business and is keen to grow. You approach your bank for a small loan, but they say you can only have the money if you sign a personal guarantee which would ultimately put your family home or other assets at risk. This is a straitjacket on small business growth. It is no wonder that many small business owners in that position are telling us they are choosing to avoid external funding which they could be using to capitalise on new opportunities. For amounts which are triflingly small for banks, but potentially transformational for small business owners, a strong dose of proportionality is required rather than a blanket imposition of personal guarantees." Martin McTague, FSB national chair.

The FCA has 90 days to respond to the FSB super-complaint and is expected to issue its findings in the coming days.

Written by Rachel Miller.

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