News

• -    49% of small business owners are personal guarantors for a business loan or plan to be by the end of the        year
• -    50% of small business owners have already or are planning to secure new finance in 2023
• -    42% of these people need the money to pay off outstanding debt
• -    Personal guarantees can work for small businesses if they mitigate the risk

June 2023: Underlining the high stakes involved in being a small business owner in 2023, a new survey has uncovered that over a third (34%) have put their home and life savings on the line for their business by signing a Personal Guarantee for a business loan. If their business fails, they risk losing everything.  Furthermore, 15% of those surveyed anticipate becoming a personal guarantor for a business loan within the year. The findings of the survey by Purbeck Personal Guarantee Insurance, demonstrates how difficult it has become for small business owners to access funding without taking the serious step of signing a personal guarantee.  

Worryingly, the survey also found that while half of small businesses plan to secure new finance this year, 53% of these small business owners are borrowing to ease cash flow and 42% need the money to pay off existing outstanding debt.

Raising finance in a struggling economy is not easy and while the survey found that 43% will seek finance from a traditional lender in the form of a business loan, 28% plan to use their credit cards and 28% plan to use overdrafts to help fund their business.  In addition, 1 in 5 (21%) will ask friends or family for cash.

Todd Davison, our MD said: ”In today’s turbulent economy, it will come as no surprise that small business owners are seeking additional finance but it has become increasingly difficult, since the Pandemic, for a small business to find funding without a personal guarantee requirement. It is vital that business owners fully understand the risks of signing a personal guarantee and importantly how to mitigate them.  This can range from sharing the risk to using personal guarantee insurance to help settle the debt, should the business fail.  So far in 2023, we have seen more SME owners apply for personal guarantee insurance^[ii] (PGI) to mitigate the risk of business failure, than at any time previously.”

After the 2008 financial crisis, the popularity of leverage buyouts experienced a decline, but the use of this dynamic acquisition strategy is on the rise once again. 

May 2023:  A Freedom of Information request to the British Business Bank by Purbeck Personal Guarantee Insurance, the U.K.’s only provider of personal guarantee insurance (PGI) to small business owners has revealed the current level of debt and arrears associated with the Bounce Back Loan Scheme (BBLS), The Coronavirus Business Interruption Loan Scheme (CBILS) and the Recovery Loan Scheme (RLS). Purbeck’s analysis shows that over 145,000 BBL loans worth £3.8bn are in default as businesses continue to battle economic headwinds.

The findings come as latest estimates show that of £47 billion paid out in Bounceback Loans, £17 billion is already expected to be lost, £4.9 billion of that - over 10% of the loans - to fraud. 

9% of Bounce Back Loans are currently in default, down fractionally from 12% in July 2022 with the average loan in default standing at £26,571. 

While there are fewer CBILS loans in default - under 2% - this is a small rise on July last year when 1% of loans were in default. The average amount owed is £175k, from £164k in July 2022.

The analysis has also uncovered that businesses are typically borrowing £210k under the Recovery Loan Scheme which is open for applications until June 2024, and the average personal guarantee commitment made by business owners to secure a loan under the Scheme is £472k.


Bounce Back Loans default statistics:

For a business owner or director, entering into a personal guarantee and placing your personal assets at significant risk can be a daunting prospect, which is why it’s crucial to be aware of some of the factors surrounding this form of legal agreement. 

At Purbeck, we understand that signing a personal guarantee is a huge commitment.

15^th March 2023: Small business champion, Todd Davison, our MD, responds to today’s Budget and the updated economic and fiscal forecasts for the next five years from the Office for Budget Responsibility (OBR). It was confirmed that inflation will halve by the end of the year and the UK will escape a ‘technical’ recession.

March 2023: Purbeck Personal Guarantee Insurance, the provider of personal guarantee insurance to the owners of SMEs has set out its wishlist for the Chancellor The Rt HON Jeremy Hunt MP, ahead of the Budget on 15^th March 2023.

The total value of loans supported by Personal Guarantee Insurance was over £300m in 2022, but just 4% of that value was for female founders

February 2023: Following news that a record number of new businesses were founded by women in 2022, new analysis of personal guarantee backed loans has uncovered a huge disparity in the level of financing women are securing compared to men. The analysis appears to support the findings of the Rose Review that female entrepreneurs are continuing to face challenges with access to funding.

Purbeck Personal Guarantee Insurance, the provider of personal guarantee insurance (PGI) has found that over the past 5 years, just 10% of people taking PGI for a business loan have been women.  Indeed in 2022, just 9% of policies were taken by women for personal guarantee backed loans. Furthermore, the total value of loans supported by Personal Guarantee Insurance amounted to over £300m in 2022, but just 4% of that value was for female founders, equating to £12m.

Todd Davison, our MD said: “The Rose Review has highlighted that funding remains the number one barrier facing female entrepreneurs. Women have been less willing than men to take on debt and less aware of different funding options, according to the review. We welcome the initiatives to boost access to and awareness of funding and clearly there is a role for Purbeck to play in making more female founders aware of personal guarantee insurance as an effective way to minimise the risks of personal guarantee backed loans.”

• -    The number of applications from small builders for personal guarantee insurance more than doubled in          2022, up 135% on 2021
• -    Average personal guarantee backed business loan rose to £174,101 in Q4 2022
• -    Local builders are securing finance just to keep business ticking over

February 2023: The number of local builders applying for personal guarantee insurance (PGI), to protect their personal assets should their business fail, hit a new high in 2022.

Purbeck Personal Guarantee Insurance, the U.K.’s first and only provider of personal guarantee insurance saw applications from local building firms up 135% in 2022 on 2021, as directors/owners took on new finance that put their personal assets at risk. Lenders will ask for a personal guarantee when there are not enough assets in the business to repay the loan if the business fails.

Underlining the increasing costs of running local building businesses, the average value of personal guarantee backed loans taken out by local builders rose to £174,101 in Q4 2022.  This is up from £156,900 in Q4 2021 – an increase of over £17,000.

The main reason for local building firms taking new finance in 2022 was for working capital, to assist with the day to day running costs of the business.

Todd Davison, MD of Purbeck Personal Guarantee Insurance said: “Our findings uncover the personal risks many small builders have accepted in the past year to secure finance to keep their businesses from insolvency.

“Many builders in need of new finance not only find that there’s a poor choice of loan products, but when they are able to find the right loan, they have to take on a big chunk of risk themselves as security for the lender. This means if the firm fails, the lender could use the builder’s personal estate such as their home and savings to settle the debt. A rapidly growing number are therefore taking steps to protect their personal assets should their business become insolvent.

“Small builders are feeling the impact of inflation and economic uncertainty on all sides and we know a growing number of construction companies are in ‘critical financial distress’. It therefore makes perfect sense that they are doing what they can to bring some certainty in very uncertain times. We would certainly urge any local builder that is considering new finance to fully investigate the pros and cons of signing a personal guarantee and consider insurance to mitigate the risk.  Unlike other forms of insurance, a PGI policy includes free mentoring and advice if a business gets into financial distress, to help prevent failure.”

The last three years have been a challenging time for both emerging and established businesses, from the COVID-19 pandemic to the cost of living crisis, and now the potential for inflation to continue into 2023.