P2P platforms predicted to request more personal guarantees
An insurance provider has predicted that alternative finance providers and peer-to-peer lending platforms will become increasingly reliant on personal guarantees.
Purbeck Personal Guarantee Insurance has warned that banks, alternative lenders and P2P lending platforms will seek more personal guarantees from small businesses this year.
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The insurance provider cited research from the British Business Bank which found that 15 per cent of successful finance applications required security in 2020, while separate data from Legal and General has showed that over half of small- and medium-sized enterprises (SME) business owners have given personal guarantees to secure their borrowing.
Purbeck is processing double the volume of personal guarantee insurance quotes year-on-year, showing a rise in demand for security.
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“The credit risk appetite might have returned to pre-pandemic levels, but banks will be keen to bolster their security requirements,” said Todd Davison, managing director of Purbeck Personal Guarantee Insurance.
“We also believe alternative finance and P2P lenders will increasingly request personal guarantees.
“This comes at a time when household and business finances are being squeezed and the property market is set to slow after record price rises.
“These factors could materially change the value of assets called upon to settle a loan through a personal guarantee if a business fails, leaving business owners in a very precarious position.
“There is little doubt that lenders are ready to meet an increased demand for small business finance, that has not been satisfied by the recovery loan scheme- but not at the risk of their own security.
“It is vital that as business owners sign personal guarantees to access finance, they must also consider personal guarantee insurance to mitigate the risk of losing their home and other personal assets if their business fails.”
