April 2024: As the Federation of Small Businesses (FSB) calls for a more comprehensive investigation into the use of personal guarantees for small business loans, the number of small business owners becoming personal guarantors continues to rise.  According to new analysis of applications for personal guarantee insurance in Q1 2024, by Purbeck Personal Guarantee Insurance, the UK’s sole provider of insurance protection for personal guarantees, there has been a 49% rise in business owners seeking Personal Guarantee Insurance (PGI) for a small business loan. And most of these were for loans to simply keep their business running.

Key Facts:

• - The average personal guarantee commitment required by a lender from a small business owner rose by      11% to £157,285 in Q1 2024 from £141,264 in Q1 2023. 
• - 37% of applications were for loans for working capital - this is the highest proportion recorded to date.
• - Loans for investment in growth initiatives took a slight dip compared to the previous two quarters - 15% in Q1 compared to 16% in Q4 2023 and 17% in Q3 2023.
• - 46% of personal guarantee insurance applications were for unsecured loans - this remains the most common form of loan where PGI is used and 46% is the highest proportion recorded to date.
• - Looking at young versus established businesses, the number of PGI applications from businesses under 2 years old shrank by 29% in Q1 2024.  The average loan for these young businesses was £118k.
• - In contrast the number of applications from more established businesses trading for more than two years, rose by 21%.
• - March 2024 was a record month for business owners applying for Personal Guarantee Insurance.
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Construction Bosses Under Pressure to Provide Personal Guarantees

• - The highest proportion of applications for PGI (15.8%) were from construction firms.
  - In construction, just over half (54%) of firms sought PGI in respect of a loan for working capital in Q1. This is a jump on 46% in Q1 2023.
• - 13% of applications were for loans of £125-£150,000.  This is the highest proportion recorded.
• - The average personal guarantee commitment in construction is now £162,076 from £131,944 in Q1 2023.

Todd Davison, MD of Purbeck Personal Guarantee Insurance said: “Our latest data should make interesting reading for the Federation of Small Businesses (FSB) and the Financial Conduct Authority (FCA) following the FSB’s Super Complaint regarding personal guarantee requirements for small business loans. 

It is clear that personal guarantees have become part and parcel of small business lending and with the average personal guarantee at over £157k, (£162K in construction) based on our figures, the requirement for security from lenders is significant.

The key issue is whether a personal guarantee is appropriate and proportionate to the loan being offered. Additionally, business owners need to know what they are getting into so greater education on the risks and how to mitigate them is vital.  We look forward to seeing the outcome of the FCA’s investigations and what further actions are taken to help make personal guarantee requirements fair and legitimate.”