SME owners at risk as £1.2bn CBILS loans come with personal guarantee

More than £1.2bn worth of loans distributed via the coronavirus business interruption loan scheme (CBILS) have a personal guarantee attached – with the average loan valued at 300 per cent more than the average UK house value.

This means that business owners face a high personal risk if they are unable to repay the loan, Purbeck Personal Guarantee Insurance has warned.

A freedom of information request to the British Business Bank revealed that the average value of a personal guarantee-backed CBILS loan was £766,000. This means that – after the government has covered its 80 per cent share of the loan – the borrower could be personally liable to cover an average of £153,200 if the business fails.

Read more: SME lender warns many companies will not survive

“Purbeck has supported a series of applications for personal guarantee insurance for CBILS loans,” said Todd Davison, managing director of Purbeck Personal Guarantee Insurance.

“Our concern is for the small but significant number of business owners who have secured substantial funds using a personal guarantee as security.

“Additionally, the average size of loan – more than three times the UK average house price – could be a significant issue for directors this year as the CBILS schemes is withdrawn in March and the facilities start to become repayable with interest rates of up to 15 per cent.

“It is vital that the owners of small businesses calculate their loan repayment costs ahead of the 12 month grace period from paying interest.

Read more: Mental health crisis for SME owners as cashflow concerns rise

“They also need to look at the ways they can mitigate the risks related to the personal guarantees they have offered to lenders such as through personal guarantee insurance.”

Douglas Grant, director of SME lender Conister, said that he believes the number of SME owners taking out personal guarantees on their CBILS loans could be “quite a bit higher” than the British Business Bank’s estimate.

“There is only so much that can be done by the government and we must avoid amplifying the zombie status of many of UK SMEs, living off an ever-increasing debt pile, at all costs,” Grant added.

Read more: Businesses seeking larger CBILS loans are opting for personal guarantee insurance