SMEs could face obstacles to rumoured new government loan scheme

Purbeck Personal Guarantee Insurance has welcomed rumours of a new government-backed lending scheme, but warned that would-be borrowers could face obstacles in the form of personal guarantees.

Peer-to-peer lending platforms such as Assetz Capital and LendingCrowd, and former P2P platform Funding Circle, have delivered funds to businesses through the government support schemes such as the coronavirus business interruption loan scheme and the recovery loan scheme (RLS).

According to multiple reports, government departments are in talks with banks about how a new scheme could work.

Read more: P2P platforms predicted to request more personal guarantees

However, Purbeck analysts have urged caution over personal guarantee requirements, which could create obstacles to the take up of the loans.

A survey from the insurer found that over half (53 per cent) of small- and medium-sized enterprise (SME) owners already had personal guarantees in their name for a business loan at the end of 2020, and a further nine per cent took a loan with a personal guarantee last year.

Todd Davison, managing director of Purbeck Personal Guarantee Insurance, noted that uptake of the RLS has been “far below what was expected”, and suggested that this was due to the strict qualifying criteria. He noted that those business owners who have avoided signing a personal guarantee so far may be deterred from applying for funding if this is a requirement.

“A delicate line needs to be found in setting personal guarantee requirements at the right level and more awareness needs to be built around the ways business owners can mitigate the risks to make this decision much less stressful,” said Davison.

“We are keen to work with the government and lenders to help build this awareness and deliver greater peace of mind to UK SME owners and directors.”

Read more: Business borrowers told to prepare for possibility of signing PGs

A freedom of information request by Purbeck in 2020 revealed that the Enterprise Finance Guarantee (EFG) supported £1.033bn in loans in the prior five years – of which £286m (just under 30 per cent) was backed by personal guarantees signed by SME owners applying for funding.

The average annual lending under the EFG during this time was £206m – significantly lower than the funding provided under the government’s Covid lending schemes.

Read more: Record numbers of business owners take out personal guarantee insurance

“It has become increasingly clear that there would need to be a long-term successor to the enterprise fund guarantee which was in effect ‘mothballed’ when the pandemic hit and businesses needed faster access to funding,” Davison added.

“If a new lending scheme can help to support SMEs in underserved markets…it can only be a good thing, but there needs to be close attention to the level and requirements for personal guarantees given the personal risks they pose to business owners if insurance has not been put in place.”