New data from Purbeck Personal Guarantee Insurance shows that more than a third of SME owners and directors had to take out a personal guarantee to tread water in the final quarter of last year.
Its monitor shows that 34% of PGI applications in Quarter 4 2023 were for loans to provide working capital to the business – the highest level recorded for all of 2023.
Demonstrating that personal guarantees have become an almost unavoidable part of securing a small business loan, the research looked at 2023 vs 2022, and noticed a 67.5% increase in applications for personal guarantee insurance. Applications were up 63% when Q4 2023 is compared with Q4 2022.
The Purbeck Personal Guarantee Insurance monitor is the only quarterly analysis of personal guarantee backed loans taken by small business owners and managers.
Demonstrating the barriers to finance some firms are facing, just 10% of applications were from new businesses, trading less than two years, the lowest number recorded by Purbeck since the insurance provider launched in 2017.
Figures showed that 45% of applications were for unsecured loans, the highest recorded. This type of lending occurs when there is not sufficient capital/assets in the business to cover the debt and offer the lender as security. Again, this demonstrates the precarious nature of small business finances right now.
This news comes as the Federation of Small Businesses (FSB) reveals a tightening credit environment for SMEs with only 53% of credit applications successful in the last quarter.
Meanwhile as SMEs appear to be stuck between a rock and a hard place when accessing new finance, the latest company insolvency figures reached their highest level since 1993.
Todd Davison, MD of Purbeck Personal Guarantee Insurance said: “The rise in the number of founders and directors applying for PGI to support unsecured loans is indicative of the way personal guarantees have become part and parcel of lending to small businesses. It also highlights the precarious nature of running a small firm.
“Inflation, the energy crisis, government cuts for support and supply chain issues have all impacted the rise in cost of doing business. Our data highlights how Personal Guarantee Insurance has proved so crucial in overcoming the risks of providing a personal guarantee, helping many smaller businesses access the cash they so desperately need.”
