November 2023: Responding to the oral evidence provided to the Treasury Committee’s Inquiry into SME finance, Todd Davison, MD of Purbeck Personal Guarantee Insurance says:

“We wholeheartedly agree that personal guarantees can prove to be a barrier to access to finance for small businesses. From our research around 45% of firms back off from a finance deal if they find out there is a personal guarantee attached. Purbeck Personal Guarantee Insurance was created six years ago to help remove that barrier. The key issue, as raised in the Inquiry, is whether personal guarantees are proportionate to the loan being advanced and appropriate for each case. An investigation by the Financial Conduct Authority into lending practices and whether personal guarantees could in fact be overused by lenders, particularly in low value loans, would be a good move.

“However, it is also important to recognise that personal guarantees are a core element of the commercial finance market, particularly among alternative lenders and if they were discouraged, this could lead to lenders either failing or pulling out of the market, meaning less choice for small businesses when they are searching for a new loan.

“Ultimately, signing a personal guarantee is a very personal decision which needs due care and consideration. Business owners need to know the risks and they need to know how to mitigate them through solutions such as personal guarantee insurance.  Our research shows that 64% of small business owners would be more likely to sign a personal guarantee if they had insurance in place to protect against the risk of providing it.  Furthermore, 88% think lenders and financial advisers have a responsibility to make business owners aware of personal guarantee insurance before they sign a personal guarantee. Therefore, along with possible changes to low value lending practices, greater awareness of how to cut the risks of personal guarantees, both within the lending community and amongst small business, could go a long way to improving access to finance.”