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Builders are taking out more personal guarantee backed loans but debt mountain may have passed its peak

Posted by Todd Davison on May 16, 2022 11:33:12 AM
    • -> Personal Guarantee Backed Loan Applications by Small Builders/Contractors up 58%
    • -> Loans for ‘working capital’ up 78%
    • -> Average loan value falls by £23,000

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  • Builders and contractors are facing increasing demand from lenders for personal guarantees as security for business loans according to new analysis by Purbeck Personal Guarantee Insurance.  Purbeck has found that number of applications for loans made by small building and contracting firms that had personal guarantees attached rose 58% in Q1 2022 on Q1 2021.

  • Purbeck has also uncovered that applications for business loans from builders and contractors for ‘Working Capital’ jumped 78% in Q1 2022 vs the same quarter in 2021. As the sector deals with the ongoing challenges of rising material costs, fuel price rises, skills shortages and Brexit, this new analysis underlines the severe cashflow problems facing many small builders and contractors with limited cash reserves, often working on fixed price contracts.

  • However, the average personal guarantee backed loan amongst builders and contractors fell from £193,324 in Q1 2021, to £169,877 in Q2 2022.  This figure also compares well with the rest of the small business sector where the average personal guarantee backed business loan was £174,104 in Q1 2022, based on Purbeck’s analysis. 

  • Todd Davison, MD of Purbeck Personal Guarantee Insurance said: “While demand for new funding is evident in our analysis, there’s been a big change in the size of loan being applied for since last year.  In the first quarter or 2021, the average loan application by small building firms and contractors was £50k more than the UK average small business loan at that time, now it’s £4k less. This has got to be welcome news for a sector that is grappling with multiple cost challenges.  

  • “It is also positive to understand that these businesses are taking steps to protect themselves from the risks of providing personal guarantees through personal guarantee insurance. More and more business leaders in this market know that when push comes to shove, it is down to the owner of the business to pay back a loan if they have offered security in the form of a personal guarantee. Insurance mitigates that risk and brings certainty at a time of huge economic uncertainty.”  

Topics: #pgi, #personalguarantee, #personalguaranteeinsurance, #commercial finance, #bankruptcy

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