A third of small business owners became a personal guarantor for a business loan in 2020, research has revealed.
A survey of 1,000 small- and medium-sized enterprise business owners and directors, carried out by Purbeck Personal Guarantee Insurance, has found that 24 per cent took the loan outside of the government’s support schemes, putting their home and life savings at risk if their business fails.
10 per cent agreed to sign a personal guarantee to access funding as part of the coronavirus business interruption loan scheme (CBILS) and 22 per cent of those with a partner or spouse had not informed them of the risk to their personal assets, should the business fail.
Nearly half (45 per cent) said they had decided against a loan because it required a personal guarantee. However, 64 per cent said they would be more likely to sign a personal guarantee if there was insurance in place to protect against risk.
Prior to 2020, a fifth (21 per cent) of the business owners surveyed were already acting as a personal guarantor for a business loan and eight per cent expect to become a personal guarantor for a loan in 2021.
IT & telecoms, online retail, construction, legal, hospitality and leisure, manufacturing, media/ marketing, medical and health services were among the top 10 sectors where a business owner signed a personal guarantee for a CBILS loan of £250,000 or more, or a loan outside the scheme.
The other sectors making up the top 10 included the retail high street sector for non-CBILS loans and education for CBILS loans.
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“Signing a personal guarantee is a huge step for any business owner and it is easy to understand why some may feel reluctant to share this decision with their partner or spouse given the risk it can pose to the family home and other personal assets,” said Todd Davison, managing director for Purbeck Personal Guarantee Insurance.
“If a personal guarantee puts joint assets at risk – it should really be a joint decision in a relationship.
“Business owners need to understand that there are ways they can mitigate the risks of personal guarantees, including through insurance.
“Finance professionals have a role to play here – 88 per cent of the proprietors of small businesses that we surveyed said lenders and financial advisers have a duty to make business owners aware of personal guarantee insurance.
“Knowing there is a way to protect their personal assets could give many small business owners the confidence to become a personal guarantor for a business loan – it might also make the news a great deal easier to share with their partner.”