Purbeck Personal Guarantee Insurance, provider of the UK’s only Personal Guarantee Insurance to SME business owners and directors has set out its Budget wish-list to the Chancellor of the Exchequer, Rishi Sunak to help struggling SMEs get through to the other side of the pandemic.
The Purbeck Personal Guarantee Insurance Budget Wishlist:
- 1) A tapering of furlough:
- Reducing the Government support on a monthly basis from 80% at the end of April by 10% each month until the end of August 2021 to help businesses through Q2 2021. By this point, hopefully most will have received their first and possibly second vaccination and many businesses re-opened. The extension of the scheme to the summer is welcomed but this approach would help ease the pressure on public finances.
- 2) Successor scheme to CBILS:
- With the expectation that the existing scheme is set to be extended until August, policymakers should be considering new measures to encourage lenders to provide critical funding to SMEs from the summer. This scheme needs to incentivise responsible lending without being reliant on significant guarantees by the UK taxpayer. This could take the form of a wholesale solution with a government-backed portfolio guarantee up to a certain quota, as seen with the ENABLE Guarantee. It must be cost-effective to administer, easy to access and must be competitively priced for small businesses.
- 3) A ‘Pay as you grow’ initiative:
- Similar to the ‘pay as you grow’ initiative offered to Bounce Back Loan borrowers, to provide breathing space to CBILS borrowers. Businesses would need to meet certain threshold criteria to demonstrate genuine repayment difficulties with solid repayment plans in order to be eligible for term extension or payment holidays.
- 4) Help for lenders handling bad loans:
- Support for lenders where significant segments of their SME customers with loans are in arrears to help ensure they remain ‘open for business’ for new customers. A separate vehicle could be considered to securitise these non-performing loans while proactive management of loan repayments by forbearance specialists would help preserve business and livelihoods. This would help ensure that lenders facing significant levels of non-performing loans have the credit risk appetite and human resource required to support critical funding lines for new customers.
- 5) Support for pandemic born start-ups:
- Initiate mentorship programs and access to affordable finance to support these businesses in their growth which will help the overall recovery.
Todd Davison, MD of Purbeck Personal Guarantee Insurance said: “We know how indebted many SMEs have become during the pandemic and how much of a personal risk this is for thousands of business owners who have signed personal guarantees to get access to finance. Our analysis from a Freedom of Information request has shown CBILS loans to the value of £1.22bn were advanced in 2020 with a Personal Guarantee in place as security for the lender and the average loan backed by a personal guarantee was £766,000[i]. The measures we are suggesting could play an important part in getting SMEs and the wider economy back on its feet.”
Purbeck has been supporting SMEs in financial distress during the pandemic, offering advice, mentoring and help at the point a debt needs to be settled, by acting as a point of liaison with a lender. This support is part and parcel of insurance cover that offers protection against the risk of a Personal Guarantee being called by a lender. The insurance cover offsets any outstanding obligations called in under a Personal Guarantee following business failure. The level of cover is based on a fixed percentage of the Personal Guarantee the company director wishes to insure and this is dependent on whether the corresponding finance facility is secured or unsecured. In essence, if the business does fail, up to 80% of the loan will be settled by the insurance rather than the business owner’s home, savings and other personal assets being called on to settle the debt.
With personal guarantee insurance, you can cover up to 80% of your risk, so you’re personally protected as you plan the future funding and growth of your business. For more information on what personal guarantee insurance entails, speak to one of Purbeck’s specialists today on 0208 004 7250.
[i] Calculated based on the number of loan facilities - 1587
