The number of applications for insurance for personal guarantee-backed small- and medium-sized enterprise (SME) loans declined in the second quarter – the first recorded fall since data collection began at the start of 2021.
Purbeck Personal Guarantee Insurance found that there were 13 per cent fewer applications in the second quarter compared to the first quarter, after two years of consistent quarterly rises in the volume of applications the insurer received.
“It’s no coincidence that a quarterly fall in the volume of applications for personal guarantee insurance for loans comes as MPs look into the issue of access to finance for SMEs,” said Todd Davison, managing director of Purbeck Personal Guarantee Insurance.
“As interest rates continue to rise, the decision to take on a loan becomes all the more precarious, especially when a personal guarantee is demanded as security. Let’s not forget, security may often be the business owner’s home and there is a great deal of uncertainty around home values and mortgage payments which will be creating increased caution.
“We strongly support any moves to improve lending to small businesses.”
However, year on year, the volume of applications has increased by 55 per cent, demonstrating how access to funding has become increasingly reliant on a director/owner of a business signing a personal guarantee.
In June 2023 alone, applications were up 78 per cent on June 2022. Working capital is the main reason for funding at 33 per cent, followed by investment in growth initiatives 14 per cent and development at 10 per cent.
Unsecured loans are the main type of loan where personal guarantee insurance is needed, accounting for 37 per cent of applications in the second quarter.