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Clamour for small business loans expected but catch will be personal guarantee

Posted by Todd Davison on Sep 16, 2020 9:00:00 AM
    • A new survey of commercial finance brokers[i] supporting the UK’s small businesses suggests thousands of firms will be clamouring for business loans as the government support measures ease back:
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    • -> 88% of SME finance brokers anticipate rise in demand for loans as support measures ease
    • -> 87% expect rise in business owners having to sign Personal Guarantees to get access to cash

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  • A new survey of commercial finance brokers[i] supporting the UK’s small businesses suggests thousands of firms will be clamouring for business loans as the government support measures ease back. 88% of brokers surveyed expect to see a big rise in the demand for loans from small business owners and directors in Q4 2020 and Q1 2021. However, there will be a catch. Linked to the demand in loans, 87% of brokers said they expect that the owners of small businesses will be under pressure from lenders to sign a Personal Guarantee to secure accessing to new finance, putting their home, savings and other personal assets at risk if their business subsequently fails.

    The appetite to lend to SMEs is expected to be muted as an outcome of the pandemic and, as a consequence, where funding is offered it will be on the basis of a Personal Guarantee being signed by the owners of the business. Added to this, an amendment in insolvency legislation from the end of this year means lenders may get tighter on requiring personal guarantees.

    In response to the findings of the survey, Purbeck Insurance Services provider of the UK’s only Personal Guarantee Insurance is urging small businesses and their finance brokers to look at the ways they can mitigate the risks to small business owners, through Personal Guarantee Insurance.

    Todd Davison, MD of Purbeck Insurance Services said:

  • “Around 560,000[ii] small business owners in the UK are acting as personal guarantors for business loans. With many small businesses hampered by late payment and poor cashflow – a situation exacerbated by COVID-19 - new finance can provide the vital stimulus they need to build their financial resilience and get more digitally savvy as highlighted by Be the Business[iii]. However, as it is going to become much harder for small business owners to keep business finance separate from their personal finances it is vital they go into a new finance agreement in full understanding of how they can mitigate the risk of signing a Personal Guarantee. Personal Guarantee Insurance is helping many small businesses access the funding they need without risk to the guarantor’s personal assets.”

    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. 

    [i] Survey of 100 Commercial Finance Brokers by Purbeck Insurance Services, June – August 2020

    [ii] 1.4 million UK small businesses have external funding in place according to the BDRC Finance Monitor[ii]. Of these businesses, Purbeck estimates 30% - 40% will be backed by a Personal Guarantees by the business owner/s or directors.

    [iii] Financial Times 14/9/20 Changes forced by lockdown create rare opportunity for small businesses

    Government-backed body points to ‘once in a generation’ chance to improve productivity https://www.ft.com/content/ae9f3932-a899-45e5-97aa-a3c5ba202f2f?segmentId=bf7fa2fd-67ee-cdfa-8261-b2a3edbdf916

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

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