People with Personal Guarantee Insurance Double Year on Year

March 2022: In response to the Small Business Finance Markets Report 2022 from the British Business Bank[i] which found that lending to small businesses has returned to pre-pandemic levels, owners of small businesses should be under no illusions over the security lenders now want, through the provision of Personal Guarantees. We are processing double the volume of Personal Guarantee Insurance quotes year on year, demonstrating a strengthening demand for security.[ii]

Todd Davison, our MD, said: “The credit risk appetite might have returned to pre-pandemic levels, but banks will be keen to bolster their security requirements. We also believe alternative finance and peer-to-peer lenders will increasingly request Personal Guarantees. This comes at a time when household and business finances are being squeezed and the property market is set to slow after record price rises[iii]. These factors could materially change the value of assets called upon to settle a loan through a personal guarantee if a business fails, leaving business owners in a very precarious position.”

While British Business Bank has stated in its report, 15% of successful finance applications required security in 2020^[iv], separate data from Legal and General suggests over half of SME business owners have given personal guarantees to secure their borrowing^[v].

Todd continues: “There is little doubt that lenders are ready to meet an increased demand for small business finance, that has not been satisfied by the Recovery Loan Scheme[vi] - but not at the risk of their own security. It is vital that as business owners sign personal guarantees to access finance, they must also consider personal guarantee insurance to mitigate the risk of losing their home and other personal assets if their business fails.”

[i] https://www.british-business-bank.co.uk/wp-content/uploads/2022/02/Small-Business-Finance-Markets-Report-2022-FINAL.pdf

[ii] Comparing Nov 20, Dec 20, Jan 2021 to Nov21, Dec 21, Jan 2022

[iii] https://www.nationwidehousepriceindex.co.uk/reports/house-price-growth-accelerated-in-february-with-average-price-up-gbp-29-000-over-the-last-year

[iv] https://www.british-business-bank.co.uk/wp-content/uploads/2022/02/Small-Business-Finance-Markets-Report-2022-FINAL.pdf

[v] https://www.cityam.com/exclusive-millions-of-small-businesses-vulnerable-as-672bn-of-business-loans-go-unprotected/?utm_source=newsletter&utm_medium=email&utm_campaign=Before+the+Open

[vi] The Economic and Fiscal Outlook report from the Office for Budgeting Responsibility has revised down the expected take up for the Recovery Loan Scheme from £12 billion (in the March 2021 report) to £1.6 billion by 30 June 2022 due to the ”relatively modest take-up https://obr.uk/efo/economic-and-fiscal-outlook-october-2021/