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2 out of 3 small business owners unprepared for lender demands

November 2022: A new survey[i] by Purbeck Personal Guarantee Insurance of 1000 small business owners/managers across the UK suggests that many are unprepared for lenders’ increasing demands for security in return for business loans.

When asked what it means to be a personal guarantor for a business loan, across the board, only 33% of business owners answered correctly[ii].  The findings have been revealed as new research shows that small business owners are turning to personal loans to fund their business[iii].

17% of respondents to the survey had no idea what a personal guarantee is, 19% were partially right in that it is a promise to the lender to pay off the loan but felt it would simply affect their credit rating if they failed to do so.  17% thought it is just when you allow the lender to assess your personal assets as part of the risk assessment and 14% thought it is when you need to sign for the loan in your name rather than the business name.

Looking across the U.K., small businesses in the East Midlands and East Anglia were least likely to know what it means to be a personal guarantor – in fact none of the respondents in the East Midlands knew the correct answer – while those businesses in London and the South East were most likely to know.

More encouragingly, the younger the business, the more clued-up respondents appeared to be over personal guarantees. Drilling down to business age, of those who have been in operation for up to 3 years, 39% knew what it meant to be a personal guarantor and just 10% had no idea.

Todd Davison, MD of Purbeck Personal Guarantee Insurance said: “There is a £22bn[iv] funding gap for SMEs in the UK but one of the big hurdles to funding is the personal guarantee. As lenders have become more risk averse, the demand for PGs has increased. More awareness needs to be built around the risks and more importantly, how to mitigate those risks such as through Personal Guarantee Insurance, so that more small businesses have the confidence to access the funding they need to sustain or grow their business.

“We have seen the number of personal guarantee backed finance deals rise 123% on Q3 2021, so the funding is there for many firms but signing a personal guarantee is a big step, particularly in the midst of so much uncertainty.  We would urge directors and owners to prepare for the fact that they will be asked for security if there are not enough assets in the business, know what they are getting into and what they can do to reduce the risks – then there will be no nasty surprises.”

Ends


Notes to Editors

About Purbeck Insurance Services

Purbeck Insurance Services is a Personal Guarantee Insurance specialist supporting Small and Medium sized Enterprises (“SMEs”) and promoting business confidence

Insurance policies backed by Markel International Insurance Company Limited (“Markel”), an A-Rated insurer, as rated by A.M. Best (A), Fitch (A+) and S&P (A). Markel is a shareholder in Purbeck Insurance Services.

Purbeck Insurance Services is directly authorised and regulated by the Financial Conduct Authority

Insurance is underwritten by Purbeck Insurance Services, an authorised Managing General Agent (“MGA”) of Markel

Purbeck Personal Guarantee Insurance is annual insurance policy that provides Director(s) with insurance cover in the event their business lender calls in the Personal Guarantee (provided by the Director(s) as part of raising business finance)

Key features of Personal Guarantee Insurance:

  • Premiums are competitively priced and based on individual circumstances
  • Cover is available for Personal Guarantees signed to support a wide range of business finance facilities

For further media information please contact Alison Reeson at HSL on 07876 597466, or purbeck@harrisonsadler.com.

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[i] Survey undertaken on Maru/Hub October 2022 by Purbeck Personal Guarantee Insurance of 1000 business owners or managers in small businesses.

[ii] if a business owner has signed a personal guarantee for a loan and the business defaults on that loan, the director’s home, car and anything in their personal bank account could be used to settle the outstanding debt. If they co-own their home, with a spouse or partner – they will also have to sign the guarantee. In some cases, the personal assets may not be sufficient to cover the debt which means the business owner could even find themselves facing bankruptcy.

[iii] https://info.codat.io/landing/smb-funding-gap-report

[iv] Bank of England estimate

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