SME appetite for funding jumps 9% amid 'wait and see' economy

Despite ongoing economic uncertainty, small and medium-sized enterprises (SMEs) across the UK are showing renewed confidence in borrowing, with applications for personal guarantee-backed business loans rising 9% year-on-year in the first quarter of 2025.

The findings, released in the latest Personal Guarantee Insurance (PGI) Monitor for Q1 2025 by Purbeck Personal Guarantee Insurance, point to a surge in activity ahead of key tax changes and a growing appetite for business growth and acquisitions.

The most striking trend was a 50% year-on-year surge in SME loans for business acquisitions, reflecting a rush to complete deals before changes to Capital Gains Tax and Business Asset Disposal Relief came into effect on April 6. This pre-tax deadline activity suggests SMEs acted quickly to capitalise on more favourable conditions, with demand expected to ease in the coming months.

“Our data shows that SMEs are borrowing more than they were this time last year but they are borrowing responsibly,” said Todd Davison, Managing Director of Purbeck Insurance Services.

“They are using insurance to cut the risk of signing a personal guarantee so that they can access the funds they need to grow, invest, or manage cash flow healthily.”

While acquisition-related borrowing surged, loans for working capital—often used to maintain day-to-day operations—fell by 6%, though this purpose still accounted for 32% of all personal guarantee backed loans taken out by SMEs. This decline may reflect a degree of increased financial stability or strategic caution among businesses anticipating future shifts in policy or market demand.

SMEs borrowing bigger, backed by insurance

Supporting this uptick in financial activity, the average personal guarantee-backed loan rose by 16% to £182,770 in Q1 2025, up from £157,285 a year earlier. Notably, the number of personal guarantee-insured loans exceeding £300,000 has doubled year-on-year, a trend driven by expanded insurance cover limits now available to borrowers.

Purbeck’s report also highlights an encouraging 17% increase in loans aimed at business growth, while business development loans climbed 11% over the same period—evidence that despite the challenges, many SMEs are still pushing forward with investment plans.