There’s no escaping the fact that modern business finance is changing.
Confidence in borrowing is low, with only 1.5% of UK SMEs applying for bank loans, many deterred by concerns of rejection or simply wanting to avoid debt altogether.
As traditional banks are tightening their lending criteria, access to unsecured capital is harder to come by, and more directors are putting their personal finances on the line to secure growth.
So what does the future hold, and how can SME leaders protect themselves without holding back their ambitions?
The shift in business financing
If you're running an SME, you've probably felt the change. Getting a 'yes' from the bank is no longer a given, even with a solid business plan and healthy history. In fact, SME loan approval rates have fallen below 50%, compared to 67% in 2019. However, the demand for funding hasn’t disappeared. It’s just being met elsewhere.
Unsecured loans are now the top choice for SMEs. Alternative lenders are stepping up; These platforms now account for 60% of all SME loans, a huge jump from just 10% back in 2008. Despite the current climate, businesses are still backing themselves. And rightly so… ThinCats MD Ravi Anand says SMEs that borrow are seven times more likely to grow than fail.
The narrative is clearly shifting. From survival to growth. Loans for working capital fell 24% quarter-on-quarter, suggesting fewer businesses are borrowing just to stay afloat. Instead, loans for growth initiatives rose 38%, and asset finance applications climbed nearly 10%
It’s a strong sign that small businesses are becoming more confident, focusing on investment and expansion rather than weathering the storm.
But there’s a catch: more flexible funding often comes with personal strings attached.
Why personal guarantees are on the rise
As more businesses turn to alternative lenders, personal guarantees are becoming the norm, not the exception.
45% more SMEs took out personal guarantee-backed loans in 2024. In Q4 alone, applications were up 25% on the previous year. Start-ups led the way, with a shocking 50% jump in PG-backed loans from businesses under two years old.
Why? Because directors need quick access to flexible finance solutions. And in return, lenders need reassurance. It's become a pragmatic trade-off.
It’s also worth noting that the average amount directors are now personally guaranteeing has climbed, reaching £194,499 in Q2 2025, edging closer to the £200k mark.
Add to that rising post-budget costs, and it's no surprise more directors are accepting personal finance risk in return for growth capital. But the stakes are high, and many are waking up to the need for protection.
The risks behind the trend
Personal guarantees might be the golden ticket to accessing funding, but they come at a cost. When a director signs a personal guarantee, they’re putting their own assets on the line if the business defaults. That means:
- Being personally liable for repaying the debt
- Risking their home, savings and other personal assets
- Damaging their credit rating
- Facing legal action and emotional stress
It's a big ask, especially when the future is uncertain. But there are ways to manage that risk.
The role of personal guarantee insurance
Personal guarantee insurance (PGI) is growing increasingly popular, allowing directors to say yes to personal guarantee-backed loans without exposing themselves to the full weight of the risk. Here’s how it works:
- PGI covers a significant percentage of the value owed on a called-in guarantee, protecting a director’s assets.
- It’s available to directors or limited companies who have signed, or are about to sign, a personal guarantee.
- In the event the business can't repay the loan, PGI cushions the blow, both financially and emotionally.
PGI uptake is growing, with applications rising and spiking by nearly 18% in June 2025 alone, as more directors look for the peace of mind they need to move forward with their business goals.
What’s happening behind the scenes
The government has started to act following the complaint raised by the Federation of Small Businesses (FSB) in December 2023 regarding the widespread use of personal guarantees in small business lending.
In response, a new Code of Conduct under the Growth Guarantee Scheme is being introduced to enforce fairer practices and improve SME understanding of what they’re signing up to.
At the same time, funding support for SMEs is expanding:
- The British Business Bank’s capacity is rising to £25.6bn
- Additional backing is being channelled into ENABLE, start-up loans, and the Growth Guarantee Scheme.
- Tools like the upgraded Finance Hub and Business Growth Services are helping to simply funding processes.
- Targeted investment is being directed toward under-represented founders, regional economies, and high-growth scale ups.
Together, these changes signal a broader shift with aims to make small business finance fairer and more accessible.
Why Purbeck is leading the way
Personal guarantees are becoming part and parcel of modern business finance, but that doesn’t mean directors should be left exposed.
At Purbeck, we understand that signing a personal guarantee is a big decision. It's not just paperwork; it's your home, your savings, and ultimately, your future on the line.
That’s why we’ve developed insurance that’s specifically built to protect directors in exactly this position. We work closely with brokers and lenders across the UK, with policies designed with SMEs in mind. We cover up to 80% of the amount owed if a guarantee is called in, giving you the breathing room you need to focus on growing your business.
Protecting your personal finances shouldn’t mean putting your plans on hold. With Purbeck, you can move forward knowing there’s support in place if things don’t go to plan.
If you’re exploring finance options, don’t hesitate to get in touch with a member of our team today.
