Personal guarantee-backed loans soar in third quarter
The number of business loans backed by a personal guarantee more than doubled year-on-year in the third quarter, new research has revealed.
Data from Purbeck Personal Guarantee Insurance found that the volume of personal guarantee-backed small business loans rose by 123 per cent over the period.
The insurer’s analysis showed that the most common reason for taking out these loans was for working capital (28 per cent), while others used the finance to invest in growing their business.
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Unsecured loans remain the prime funding route making up 37 per cent of business loans in the third quarter, Purbeck said.
However, the average value of loans has fallen by around 10 per cent year-on-year from £164,524 in the third quarter of 2021 to £148,357 in the third quarter of 2022.
The data was compiled from Purbeck’s small business customers, who took out insurance to mitigate the risk of the personal guarantee securing their loan.
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“Despite concerns over access to finance for small businesses, our data shows that the third quarter of 2022 has been another strong quarter in personal guarantee-backed loans for small businesses,” said Todd Davison, managing director of Purbeck Personal Guarantee Insurance.
“We have seen a steady increase in loans secured for investment in growth opportunities which is hugely positive given the immense cost challenges facing many small firms. With interest rates rising, the issue now is servicing these new loans as the cost of doing business continues to grow.
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“This really underlines the importance of personal guarantee insurance to protect the personal assets of business owners and directors who have put their savings, investments and even their home on the line as security should their business fail. With insolvency rates exceeding pre-pandemic levels it is vital small business owners take every step they can to mitigate the risks that come with securing new funding.”