Demand for personal guarantee backed SME finance rose by 68% in 2023

Over a third of the owners and directors of the UK’s small businesses had to take the big step of signing a personal guarantee to keep their businesses afloat in the final quarter of 2023, according to the latest Purbeck Personal Guarantee Insurance Monitor.

34% of PGI applications in Q4 2023 were for loans to provide working capital to the business – the highest level recorded for the whole of 2023.

Demonstrating that personal guarantees have become an almost unavoidable part of securing a small business loan, looking at the whole of 2023 vs 2022, there has been a 67.5% rise in applications for personal guarantee insurance. Furthermore, comparing Q4 2023 to Q4 2022, applications were up 63%.

Highlighting 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.

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 (pictured), 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.”