January 2024: Following the FSB’s Super-Complaint to the FCA over SME lending practices, including the use of personal guarantees on small business loans, new data from Purbeck Personal Guarantee Insurance has revealed that 7% of the low-value, personal guarantee-backed loans it has protected have been for under £10,000, while 16% have been for under £19,999.
The data supports the FSB’s calls for more proportionate use of personal guarantees on small business loans and reinforces how difficult it has become for small business owners to access finance without signing a personal guarantee. Purbeck’s data shows that the number of SME owners securing personal guarantee insurance (PGI) for a business loan doubled in September 2023 compared to the same month in 2022. Of all the applications for Personal Guarantee Insurance Purbeck has received in the past 6 years, 24% have been for loans that are under £50,000 in value.
Purbeck Personal Guarantee Insurance – Personal Guarantee Backed Loans up to £50,000
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Loan Value up to £50,000
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Proportion
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Up to £10,000
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7%
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£10,000-£19999
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16%
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£20,000-£29,999
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25%
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£30,000-£39,999
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16%
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£40,000-£50,000
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36%
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Todd Davison, MD of Purbeck Personal Guarantee Insurance says:
“Personal Guarantees can prove to be a barrier to small business finance but it is also important to recognise that they give access to funding in many instances where other avenues might remain closed. For example, personal guarantees are common among alternative lenders. While it is clear from our analysis that further investigation is needed, we need to avoid changes that would lead to less choice for small businesses when they are searching for a new loan.
“There also needs to be greater awareness of the risk mitigation strategies small business owners can consider before they take the big step of signing a personal guarantee. This might include sharing the guarantee with a co-director, guaranteeing part rather than the whole of the loan, or taking personal guarantee insurance. This not only offers mentoring and support to prevent failure but also includes a Demand Response Mitigation Service where we help to work with the lender to agree on a reduced settlement.”
