PGI Knowledge Centre

Borrowing hit record levels in 2020 with almost half of the UK’s small and medium-sized businesses seeking out financial support – more than three times the level of the previous year – amid the coronavirus pandemic.

Interest on average Personal Guarantee backed loan through CBILS could reach £327,000.

The Office of Budget Responsibility has predicted a default rate of 40.4% on BBL and CBIL finance to SMEs, with £27.2 billion of loans expected to be written off^[i].  Purbeck Personal Guarantee Insurance, provider of the UK’s only Personal Guarantee Insurance to SME business owners and directors, is urging the 59%^[ii] of businesses revealed to have borrowed more than 20% of their turnover, to calculate their repayments and heed the insolvency warning signs.

• • CBILS loans worth £1.22bn revealed to have Personal Guarantee attached, average loan 300% more than UK house value at £766,000:

  • -> Freedom of Information request exposes high personal risk to SME owners
  • -> Average loan value £766,000
  • SME business owners could be on the hook for over £150,000 if their business fails
  • -> 39% of SMEs not aware of Personal Guarantee risks[i]
  • -> Concerns over size of loan repayments and awareness of personal guarantee risks

• Small business owners facing failure also face increased risk of losing their home.

• The value of personal guarantee backed business loans to SMEs during the pandemic has risen on average by 45% according to analysis by Purbeck Insurance Services, provider of the UK’s only Personal Guarantee Insurance.

No company director wants to have to face up to the prospect of their business becoming insolvent. But directors have a duty to act in a certain way, in accordance with the relevant legislation, should their company find itself in a position where it can no longer pay its debts.

• 1. Applications for Personal Guarantee Insurance double[i] in September 2020 as lenders pull back from emergency loans

• • More than one million small businesses have successfully applied for a government-backed Bounce Back loan since the scheme was introduced at the start of May, according to figures from the Treasury.

    The initiative has handed out loans worth more than £30 billion as SMEs attempt to drive their businesses forward during these testing times.

• • 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 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

• A rise in start-ups born during the pandemic^[i] is hugely positive but also not surprising. We’ve had more time to think and do and explore new avenues, particularly where existing business models or employment have ceased to exist. Necessity truly is the mother of invention. But while the pandemic has created new opportunities, the lending environment for start-ups looks set to be challenging.