Purbeck responds to the R3[i] survey of insolvency and restructuring experts that found 8 in 10 respondents expect personal insolvency numbers to increase within the next 12 months with 74.2% expecting this to be related to business failure as a result of Personal Guarantees.
Small business owners who have had to provide a personal guarantee to a lender for a business loan, are being urged to take action now to help prevent personal insolvency through business failure. A survey of insolvency and restructuring practitioners by R3[i] found over 8 in 10 respondents expect personal insolvency numbers to increase within the next 12 months with 74.2% expecting this to be related to business failure. Purbeck Insurance Services, provider of the UK’s only Personal Guarantee Insurance solution is highlighting the role Personal Guarantee Insurance can play in cutting the financial risk business owners face at a personal level when they use their personal assets as security for a business loan.
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.
Purbeck estimates that between 420,000 and 560,000[ii] small business owners in the UK are acting as personal guarantors for business loans and could be facing the risk of losing their home and personal insolvency due to the impact of Covid-19.
Todd Davison, MD of Purbeck Insurance Services said: “Many small business owners will feel caught between a rock and a hard place. They need the finance but that will increasingly mean putting their personal assets on the line, particularly as lending to SMEs is expected to become more risk averse as a consequence of the pandemic. However, Personal Guarantee insurance can provide the answer, giving business owners the confidence to take on new finance with the peace of mind that if the business does fail, the insurance is there to contribute towards the final settlement of the debt as part of the cover.
“When we launched back in 2017, we could not have anticipated the part Personal Guarantee Insurance would play in helping businesses recover and rebuild from the pandemic. The protection extends to mentoring and support services for policyholders in financial distress, a service that has perhaps never been more valued or needed by our customers.”
[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.