Half of small businesses have never used business finance, 29% rely on overdrafts

As Britain’s top banks reaffirm their commitment to back British business through access to finance, ahead of Brexit, Purbeck Insurance Services is urging small business owners not to be deterred by a personal guarantee to secure access to funding but to look at ways they can mitigate the risk. In a survey by Purbeck, over 1 in 10 small business owners (12%) said they’d decided against taking out a business loan because it included a personal guarantee. Purbeck Insurance Services is the UK’s only insurance provider to offer personal guarantee insurance.

The same study found that while 49% had never accessed business finance, the most common form of finance used is an overdraft with 29% of small business owners calling on their bank overdraft to fund their business, followed by an unsecured business loan.

Todd Davison, director of Purbeck Insurance Services said: “Our findings suggest that many small business owners could be looking at external finance for the first time in readiness for Brexit. It’s important they seek independent advice and consider personal guarantee backed finance as part of their options as they can seriously reduce the risk of these types of loans. As well as taking personal guarantee Insurance, they can also share a person guarantee with fellow directors of the business, and negotiate which part of the loan is covered.

Purbeck’s top personal guarantee tips
1. Educate yourself about the risks, whether you can afford to take them and always seek legal and/or personal finance support
2. Consider splitting the guarantee between your fellow directors
3. Know where your responsibilities for the guarantee begin and end – is it loan specific or does it cover all future loans that the lender may provide?
4. Negotiate a time limit for the guarantee and a cap on the amount
5. Remember that if you have signed a personal guarantee for another business loan they are cumulative
6. Agree terms so that the lender seeks settlement from company’s assets before enforcing the guarantee
7. Confirm all points of agreement intention and expectation in writing with the lender.
8. Consider personal guarantee insurance to protect against the risk that the guarantee is called by a lender. This will offset any outstanding obligations called in under a personal guarantee.