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Record court actions by non-bank lenders spark warning for small business owners over personal guarantee risks

Jirsch Sutherland

Key Facts:

• Court actions by non-Big-Four lenders reached a record high in the September 2026 quarter, driven by non-bank lenders.

• Jirsch Sutherland reports a sharp rise in distressed SMEs taking out short-term loans with personal guarantees to manage cash flow.

• Directors risk losing their homes and personal assets if their businesses fail, with two recent Jirsch Sutherland cases highlighting the consequences.

• Jirsch Sutherland urges SME owners to seek restructuring advice before taking on expensive short-term debt or signing personal guarantees.

Media release

12 October 2026

 

Get advice before guaranteeing short-term loans, SMEs warned

 

Small business owners are being warned about the risks of personally guaranteeing short-term loans, as new figures reveal court actions filed by non-Big-Four lenders reached a record high in the September 2026 quarter. Insolvency and restructuring firm Jirsch Sutherland says more distressed SMEs are turning to short-term finance to manage cash flow pressures, potentially putting their homes and personal assets at risk.

 

Jirsch Sutherland Partner Malcolm Howell says he and his colleagues have seen a sharp rise in struggling business owners taking on short-term loans with personal guarantees attached – often discovering the extent of their personal exposure only when the company enters liquidation.

 

“Directors aren’t taking on these loans for growth; they’re using them as a temporary lifeline to pay employees, suppliers and the ATO just to keep the doors open,” Howell says. “Short-term finance has always been around, but what’s changed is the number of owners turning to it when they’re already struggling, without realising what a personal guarantee can mean if the business fails.”

 

According to the latest Alares Credit Risk Insights, court actions by non-Big-Four lenders were well ahead of the same period last year, with non-ADI lenders driving the increase. Alares attributes the surge to more borrowers turning to private credit and non-Big-Four lenders.

 

Jirsch Sutherland’s  warning comes amid growing use of non-bank finance by Australian SMEs. Research released by ScotPac in June found 34 per cent of SMEs had sourced non-bank lending in the previous 12 months to support working capital.

 

Reserve Bank of Australia research also shows the non-bank share of SME lending has increased strongly since 2022, particularly for smaller loans. The RBA notes that businesses may use higher-cost unsecured finance for relatively short periods to manage temporary cash flow issues.

 

“Alternative and non-bank lenders have become an increasingly visible source of fast finance for small businesses, with some promoting rapid or same-day approvals,” Howell says. “That speed and accessibility can be attractive when a business is under cash flow pressure, but owners need to understand the cost, the terms and any personal guarantees they are signing.

 

“These loans are often secured against the assets of the business, which can make it difficult to refinance or access further finance if it’s needed. It can leave an already struggling business with even fewer options.”

 

Howell says short-term finance has a valuable role to play, but timing matters.

 

“Short-term finance can be the right tool for a viable business facing a genuine, temporary cash flow gap,” he says. “The concern is when a business takes on expensive additional debt to meet existing obligations before seeking restructuring advice. That can make a Small Business Restructuring (SBR) considerably harder or no longer viable.

 

“A personal guarantee blurs the line between the company’s finances and the owner’s. What starts as a business cash flow issue can quickly escalate into a serious personal financial crisis.”

 

Personal guarantees put directors' homes at risk

Howell points to two recent Jirsch Sutherland matters that illustrate the potentially devastating consequences for business owners:

 

• Dessert manufacturer: The business sought restructuring assistance with about $200,000 owed to unsecured creditors, roughly 75 per cent of it to two short-term lenders. Both loans carried personal guarantees from the director, meaning neither SBR nor liquidation would resolve his personal exposure. He is now taking steps to sell his home to meet the liabilities

 

• Transport business: Facing risking costs and a driver shortage, the company borrowed about $75,000 from a short-term lender to manage cash flow, with the director personally guaranteeing the loan. Following the companies liquidation, the director entered personal bankruptcy. His trustee is now moving to realise his home. The lender had lodged a caveat over the property immediately after the liquidation, despite not being the largest creditor.

 

“Liquidation doesn’t make a valid personal guarantee disappear,” Howell adds. “The company may have failed, but the lender can turn its attention directly to the guarantor. That can be a huge shock for an owner who assumed their personal assets were protected.

 

“Seeking advice from a restructuring specialist doesn’t automatically mean putting your company into insolvency – it means understanding all available pathways before taking on debt that could narrow your choices. Get advice before you borrow and before you sign a personal guarantee.”

 

-ENDS-

About us:

About Jirsch Sutherland – jirschsutherland.com.au

Established in 1984, Jirsch Sutherland is one of Australia’s leading national independent insolvency specialists and is the country’s leading voluntary insolvency firm. The Jirsch Sutherland team works closely with small and mid-size accounting, finance and legal firms – and their clients – to provide a wide range of expert corporate and personal insolvency services including liquidations, voluntary administrations, receiverships and bankruptcy. 

With head offices in Sydney, Melbourne, Brisbane, Newcastle and Perth, supported by a network of regional offices and a growing South Australian presence, Jirsch Sutherland’s national reach combined with a local presence underpins the company’s ongoing success. For over four decades, Jirsch Sutherland has earned a well-deserved reputation for protecting and guiding clients through the insolvency process in a fair and ethical way.

In Western Australia, Jirsch Sutherland trades as WA Insolvency Solutions (WAIS).

Contact details:

Lisa Llewellyn

Llewellyn Communications

[email protected]

0419 401 362