A new survey of 1000 small business owners and managers by Purbeck Personal Guarantee Insurance has uncovered that many small business owners could be unprepared for lenders' increasing demands for security in return for business loans. With close to 1 in 5 (18%) considering closing their business in the past year in the face of rising costs, the survey also uncovered the measures being taken by small firms across the UK to keep themselves afloat.
42% of small businesses have increased prices
42% have implemented price increases, topping the list followed by energy saving measures being used by 31%. 23% are increasing or changing their business hours, while 20% are looking for extra financial support either in the form of new investment or an extension of an overdraft limit.
Increase prices 42%
Cut energy use 31%
Increase business hours 13%
Seek new investment 13%
Operate the business remotely 11%
Change business hours 10%
Reduce workspace 9%
Relocate 7%
Extend overdraft limit 7%
Only 33% know what it means to be a personal guarantor
When we asked what it means to be a personal guarantor for a business loan, across the board, only 33% of business owners answered correctly.
17% of respondents to the survey had no idea what a personal guarantee is, 19% were partially right in that it is a promise to the lender to pay off the loan but felt it would simply affect their credit rating if they failed to do so. 17% thought it is just when you allow the lender to assess your personal assets as part of the risk assessment and 14% thought it is when you need to sign for the loan in your name rather than the business name.
Looking across the U.K., small businesses in the East Midlands and East Anglia were least likely to know what it means to be a personal guarantor - in fact none of the respondents in the East Midlands knew the correct answer -while those businesses in London and the South East were most likely to know.
Personal Guarantee Insurance can mitigate loan risks
There is a £22bn Bank of England estimated funding gap for SMEs in the UK but one of the big hurdles to funding is the personal guarantee. As lenders have become more risk averse, the demand for PGs has increased. More awareness needs to be built around the risks and more importantly, how to mitigate those risks such as through Personal Guarantee Insurance, so that more small businesses have the confidence to access the funding they need to sustain or grow their business.
Personal Guarantee backed finance deals on the up
We have seen the number of personal guarantee backed finance deals rise 123% on Q3 2021, so the funding is there for many firms but signing a personal guarantee is a big step, particularly in the midst of so much uncertainty. We would urge directors and owners to prepare for the fact that they will be asked for security if there are not enough assets in the business, know what they are getting into and what they can do to reduce the risks - then there will be no nasty surprises.
With Personal Guarantee Insurance in place, if the business does fail, 80% of the loan will be settled by the insurance rather than the business owner's home, savings and other personal assets being called on to settle the debt. The level of cover is based on a fixed percentage of the personal guarantee the company director wishes to insure. This is dependent on whether the corresponding finance facility is secured or unsecured.
Personal Guarantee Insurance also does a lot more than pay out following a claim. Policyholders are offered access to free mentoring and support services if the business gets into financial distress, plus the huge benefit of expert guidance at the point the debt needs to be settled.
Immense resilience being shown by small businesses
It is good to see from our survey that small business owners continue to show immense resilience and are taking sensible measures to manage costs as a matter of survival. However, our findings suggest there are clear differences in how businesses are coping in different regions of the UK, underlining the importance of the ‘Levelling Up' agenda.
Purbeck's focus is on enabling small businesses in the regions most impacted, to access funding without risk to the business owners/directors. The key issue is that small businesses must not over-extend themselves financially given the rise in interest rates and risks of signing personal guarantees for business loans. If access to new funding is vital and investors are proving hard to find, then expert, independent advice from a professional such as commercial finance broker is critical. This will help to ensure the right loan product is secured for the business's needs.
For more information visit: Purbeck Personal Guarantee Insurance
