The value of personal guarantee backed business loans to SMEs during the pandemic has risen on average by 45% according to analysis by Purbeck Insurance Services, provider of the UK’s only Personal Guarantee Insurance.
As applications for the Coronavirus Business Interruption Loan Scheme (CBILS) close on 31st March 2021, with over £17bn[i] in loans already approved, a growing number of small and medium sized businesses are learning how to circumnavigate the personal guarantee requirement on loans over £250,000 through Personal Guarantee Insurance.
Purbeck has supported a series of applications for Personal Guarantee Insurance for CBILS loans. In one case, an IT company applied for a £3,000,000 Coronavirus Business Interruption Loan to assist cash flow. The directors were, however, put off taking out the CBILS loan due to a £300k joint and several Personal Guarantees required to support the facility. The Directors opted to utilise Personal Guarantee Insurance to mitigate the potential risk to their personal estates.
A pharmaceutical company opted for £500,000 under the CBILS. As the CBILS loan value was in excess of £250,000 the bank was permitted to request a Personal Guarantee from the Director in support of the facility; the Director was put off completing on the facility due to this and he therefore applied for Personal Guarantee Insurance as a way to mitigate some of his personal risk.
Todd Davison, MD of Purbeck said: “CBILS has helped many viable businesses survive during the pandemic. During the pandemic, the average loan size across our book and pipeline – both CBILS and independent loans - has been 45% up on 2019 at £634,543 compared to £436,171 and the average size of the Personal Guarantee has been £200,148.
“With time now very tight to secure a loan under CBILS, businesses need to know they can mitigate the risk of signing a Personal Guarantee rather than let this be a barrier to securing the funds they need under the favourable terms on offer.”
Personal Guarantee Insurance is a relatively new type of insurance that offers protection against the risk of a Personal Guarantee being called by a lender and will offset 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.