November 2022: A new survey 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.  The findings have been revealed as new research shows that small business owners are turning to personal loans to fund their business.

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, our MD said: “There is a £22bn 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.”