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Guarantor Loans “Kick Start” Small Businesses Shunned by Banks

New research from the guarantor loans comparison site www.compareguarantorloans.com gives some interesting insight into the situation facing small business owners and young entrepreneurs in Britain today.

46% of loans granted for business purposes are taken out by existing business owners looking to fund growth. A similar number is taken by those in full time employment looking to start their own business. With banks shunning businesses with little or no track record guarantor loans are stepping in as an alternative for funding growth.

A recent study by UHY Hacker Young accountants found that bank lending in the UK is still stalling, down 2.2% in real terms last year, and smaller businesses are being hit hardest as funding problems continue despite recovery. Demand for loans is increasing, but the banks are generally not granting new requests unless they are from existing customers with a good track record and security. Many smaller businesses that have struggled through the recession and now on a more stable footing are still being left out in the cold.

This new research shows that 66% of business loan applications for a guarantor loan are from people aged under 35. The vast majority don’t own their home (36 is the average age of a first time buyer in the UK). 25% of applications are made by the under 30’s still living with their parents. According to David Silverman, Managing Director of CompareGuarantorLoans.com, “There is a strong entrepreneurial spirit especially amongst the young. But there is a funding gap for those who don’t have a track record or who can’t offer security. Guarantor loans are proving a great source of finance because the loan is backed by a family member or a close friend”.

The average loan amount requested for business is £6,300 and 32% of applicants want the maximum amount of £10,000

The research also shows that the East Midlands and East Anglia regions are the business loan “hot spots” making 25% more guarantor loan applications per head than the average for England and Wales. The data also shows certain post code hotspots exist with Wigan, Colchester and Stockport taking the top 3 slots.

Businessman Geoff Bond compared guarantor loans on the website and applied for a business loan in March 2014. After an investor pulled out at the last minute Geoff needed to find the money elsewhere to fund the software the business needed to take it to the next stage. According to Geoff, “We had used up all our credit, the banks didn’t want to help and my wife and I had sold everything of value to develop the business to date”

One of Geoff’s business mentors, Terry Forrester, acted as a guarantor on the loan for £5000 and the company developed the software they needed.

“The loan helped complete the business model making it presentable to attract investment, which is where we are today. We are hoping to soon secure £150k of investment in return for an equity stake in our business”, says Geoff.

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