Funding gap for SMEs linked to worrying rise in personal guarantees

The difficulty small business owners are experiencing accessing funding without having to sign a personal guarantee has become clear. October 2023 saw the largest number of small business owners ever recorded, taking insurance to mitigate the risk of signing a personal guarantee as a condition of a business loan according to Purbeck Personal Guarantee Insurance.

As high street banks reduce their funding appetite, SMEs are turning to the alternative lending market where personal guarantees are a common requirement for unsecured loans. Purbeck’s analysis shows that in October 2023, there was a 60% rise in small business owners taking personal guarantee insurance (PGI), to protect their personal assets should their business fail, following a new business loan that had a personal guarantee attached.

Todd Davison, MD of Purbeck Personal Guarantee Insurance said: “In the six years we have been in operation, we have never seen the demand we are experiencing now for protection against the risk of signing a personal guarantee. While some of this can be explained by increased awareness of PGI, it also demonstrates how challenging it has become for small business owners to secure business loans via traditional routes.  We know most small businesses are seeking finance simply to keep their heads above water as working capital remains the top reason for new loans – 47% of applications were for this purpose, up from 37% in Q3 2022.

“As the routes to funding narrow, it is vital small business owners seek advice and support from a commercial finance broker.  Taking on longer term finance to pay short term creditor obligations could create a spiral of debt and ultimately lead to further business insolvencies.”