I met a business owner today who was genuinely shocked because he’d taken out a business loan and thought he’d done everything properly.
The loan was secured with a floating charge, there was a personal guarantee, but he wasn’t overly concerned about that. His thinking was simple enough – if things ever went wrong, his debtor book would comfortably cover the facility.
In his mind, the personal guarantee was there in theory – not something that would ever actually be called on – and for a long time, that line of thinking wasn’t unreasonable.
However, what he didn’t realise, and what no one had properly explained to him, is how insolvency priorities now work. In an insolvency scenario, HMRC ranks ahead of floating charge lenders for VAT, PAYE and CIS – and that matters more than most people realise. It means the debtor book he was relying on wouldn’t first be used to repay the loan. It’d first be used to clear six figures of VAT owed to HMRC.
Only after that would the lender get paid.
And if there was a shortfall? That shortfall would sit under his personal guarantee. There was silence when the penny dropped.
“But I thought I’d secured It properly”
He had – in the way many people understand security. The loan wasn’t cheap – it was arranged quickly, and it had been placed by a broker whose focus was business loans, not the wider range of funding options available.
I don’t think there was any bad intent involved, but whether through lack of awareness or lack of explanation, he’d never been shown alternatives that could have significantly reduced his personal exposure. He hadn’t considered different lenders or different structures. It’s structure is where the real risk lives.
What he could have done differently
There were options that may have changed the picture entirely:
Invoice finance, which would have ring-fenced the debtor book under a fixed charge
Asset finance, funding specific machinery or vehicles via chattel mortgages rather than general borrowing
Or a blended approach, using the right product for the right job instead of one catch-all loan
None of these are complicated or niche – they’re just appropriate – when they’re properly explained.
Different solutions for different problems
This is where I see things go wrong most often – funding conversations focus on how much is needed, and how quickly it can be arranged. Both are important, but they’re far from the whole picture. Very broadly speaking:
- Invoice finance is built for growth and working capital
- Asset finance is designed for machinery and vehicles
- Business loans are often general-purpose facilities, typically with floating charges and personal guarantees
Each has its place, but the mistake is using the same solution for every problem.
I’m not anti-speed – sometimes businesses genuinely need money quickly, but part of my job is asking the uncomfortable questions. Things like; what happens if trading dips? What happens if customers pay late? What happens if HMRC is involved? And what happens if this doesn’t go to plan?
If those questions haven’t been answered, the risk hasn’t gone away – it’s just been deferred.
The real risk isn’t the rate
The biggest risk in commercial finance isn’t always the interest rate, and it’s not even the personal guarantee on its own. It’s signing up to a structure you don’t fully understand, because it was quick or familiar or easy to arrange.
At Able, my role isn’t just to place funding – it’s to make sure business owners understand where the risk actually sits – before they need to find out the hard way. Because once you see it clearly, you can make proper decisions. And if you don’t? That’s usually when the surprises arrive. Get in touch.
