Clune calls time on Irish banks overuse of personal guarantees

1/ 3 of Irish SME loans have a personal Guarantee attached

Clune says the Irish banks insistence on personal guarantees when lending to SMEs is detrimental to plans to encourage new start-ups and promote entrepreneurship and that it makes a mockery of the concept of a company’s limited liability!

Ireland South MEP and member of the European Parliaments SME Intergroup Deirdre Clune has criticised Irish banks for overuse of personal guarantees in SME lending. According to Clune, who is to raise the issue with the European Commission, 1/3 of Irish SME loans have a personal Guarantee attached.

“This continues to be an issue that small Irish SMEs raise with me in the constituency. Research by the Irish Central Bank shows that personal guarantee (PG) usage is higher for smaller, younger and more innovative firms. The same research also found that Personal Guarantees are more prevalent in the construction and wholesale/retail sector.

“Personal guarantees are often used in conjunction with other forms of tangible business collateral such as land, buildings, machinery and other assets.

“Personal Guarantees involve the family of a business person as they put family property and assets at risk in the event of poor performance of the business. This makes a mockery of the concept of limited liability, which is designed to encourage entrepreneurship.

“Whilst I accept that banks must mitigate their risks, and that Personal guarantees can facilitate loans that may not otherwise have been approved in some cases, the excessive use of PGs in Irish SME lending is counterproductive and must be addressed.

“Banks should return to rigorous borrower screening where they evaluate repayment capacity based on expertise knowledge of particular business sector. Over dependence on PGs is simply a lazy way of lending money to SMEs.

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