Following news that business birth rates have fallen[i], Purbeck, the provider of the UK’s only personal guarantee insurance solution for the owners and directors of UK SMEs, is urging small businesses to build their financial resilience for 2020 to help maximise opportunities to grow.  In a survey by Purbeck, 70%[ii] of small business owners said Brexit uncertainty had made their business harder over the past year and the burden of managing cashflow is one of top five hardest things about running a business. 

At the same time, lenders are demanding more security from business owners and directors for new finance deals – in a recent survey of finance brokers by Purbeck, 49%[iii] reported an increase in demand for personal guarantees in the past year.

Todd Davison, Director at Purbeck said, “The slight fall in business births is not wholly surprising given the on-going uncertainties of the economic environment and the increased pressure on small business owners and directors to put their personal assets on the line to secure finance.  However, there are ways small businesses can build their resilience and at the same time reduce the personal risk for the owner of the business – Personal Guarantee Insurance being a good example.”

Purbeck’s Tips to get finance fit for 2020

• - Review your business plan and establish where you are now, where you want to be in the next few years and how you’re going to get there.
•  
• - Reduce your reliance on any one revenue stream or customer. Seek ways to access alternative income and from multiple sources.
•  
• - If you do need additional finance, talk to an expert, such as finance broker, accountant or solicitor. They will give you advice on which type of finance would be right for your business.
•  
• - Look at how you could improve your credit profile to make yourself an attractive proposition to lenders.
•  
• - Consider the pros and cons of each type of finance including:
•  
  • 1) Bank Loan / Overdraft - You will need to prove to the lender proof the business will generate the income and cash to repay both the facility according to the terms of the loan, and service the loan by meeting interest payments. Security in the form of business or personal assets is sometimes needed for this type of borrowing.
  •  
  • 2) Factoring - Also known as debt factoring, this type of finance works by the business ‘selling’ their invoices to a third party at a discount, who agrees to manage the company’s sales ledger and credit control on an ongoing basis for a fixed period. In return, the factoring company advances some funds upfront when the business client sends an invoice to a customer. This ensures that the business has a regular flow of cash by unlocking funds tied up in unpaid invoices.
  •  
  • 3) Using a Credit Card - Business credit cards are a quick and easy way to borrow money. The general principles of using a business credit card are the same as they are for a personal credit card. Because company credit cards are a type of unsecured lending, the criteria are fairly stringent and the limits are strict. As such, when applying for a business credit card, lenders will most likely look at your business credit score, and they may ask for personal guarantees to provide some security.
  •  
  • 4) Debt Crowdfunding – This works largely in the same way as the traditional model of applying to a bank for a business loan, the main difference being that the finance is raised via a crowdfunding or peer-to-peer lending website, and the funds are contributed by multiple investors. As part of the agreement, businesses are required to pay the investor(s) their money back with interest – but, crucially, they don’t have to sell any equity. It can be attractive to businesses seeking an alternative source of finance who have been unable to raise funds via banks or credit unions.
  •  

- Depending on how much money is borrowed, you will typically be required to provide some security, in the form of business assets or a personal guarantee.

- If you are offered a finance deal with a personal guarantee attached, understand the risks before signing on the dotted line.

43% of small businesses go it alone when it comes to arranging new finance for their business. We believe taking independent financial advice is critical.  Good advisors will know business finance options, the risks involved and how they can be mitigated, particularly where personal guarantees are concerned. It’s important to take time to assess the different ways to finance your business and undertake due diligence. And don’t procrastinate; while uncertainty remains a certainty, SME owners should make it their New Year resolution to exert some control over their finances to ensure they are fit for 2020 and beyond.

• Purbeck Insurance is a specialist Personal Guarantee Insurance underwriter, authorised and regulated by the Financial Conduct Authority. We work alongside lenders and brokers to provide a bespoke insurance solution based on the lender’s individual requirements and risk profile. Please contact one of our specialists today to learn more on 0208 004 7250.
•  

[i] https://www.ons.gov.uk/businessindustryandtrade/business/activitysizeandlocation/bulletins/businessdemography/2018

[ii] Based on a survey of 500 small business owners and directors, by Purbeck, 2019

[iii] Survey of 60 Finance Brokers, Q3 2019