Start-ups warned to start on the right foot

November 2021: Our survey of 1,000 small business owners^[i] has found that over 1 in 5 (22%) have not told their life partner that they have signed a personal guarantee. If the business defaults on a personal guarantee backed loan, the director’s home, car and anything in their personal bank account could be called on to settle the outstanding debt. Personal Guarantee Insurance mitigates this risk. With business failures at their highest since 2017[ii] and start-ups also up in Q3 2021^[iii], we are urging new business owners to start on the right foot.

Start-up loans to the value of £34.6m have been protected by our innovative new insurance to date, and the five top sectors where business owners are taking advantage of Personal Guarantee Insurance are:

Todd Davison, our MD, said: “We have estimated that over 420,000 small business owners in the UK were acting as personal guarantors for business loans prior to the pandemic. Furthermore, around £2.1bn in CBILS loans were taken by business owners and directors which had Personal Guarantees attached^[iv].

“The problem is that SME access to finance is increasingly going to necessitate signing a Personal Guarantee as lenders become more risk averse. If a small business owner hasn’t yet faced this prospect, they probably will. Being open with those closest to you about this decision is the best policy as a Personal Guarantee is a heavy burden for any business owner to carry on their own. It is also crucial SME owners and directors understand how they can mitigate the risks with Personal Guarantee Insurance becoming an increasingly common option. Putting this kind of protection in place could certainly make the news more palatable.”

[i] Survey conducted May 2021 via Cision of 1,000 SME Owners and Directors

[ii]https://www.ons.gov.uk/businessindustryandtrade/business/activitysizeandlocation/bulletins/businessdemographyquarterlyexperimentalstatisticsuk/julytoseptember2021 - Business closures were higher in Quarter 3 (July to Sept) 2021 than in any Quarter 3 since 2017

[iii]https://www.ons.gov.uk/businessindustryandtrade/business/activitysizeandlocation/bulletins/businessdemographyquarterlyexperimentalstatisticsuk/julytoseptember2021 - The number of IDBR business creations in the UK in Quarter 3 (July to Sept) 2021 was 84,435. This figure is 4% higher than Quarter 3 2020

[iv] FOI Request in April 2021 for breakdown of CBILS loans secured over £250,000 where a personal guarantee was required by the lender, up to 31^st March 2021