Start-up founders increasingly asked to sign PG for business loan
Start-up founders are increasingly facing demands to sign a personal guarantee as security for a business loan, research has found.
Analysis of applications for personal guarantee insurance by Purbeck Personal Guarantee Insurance found that the number of start-up founders taking out this type of insurance rose by 46 per cent in 2022 compared to the previous year.
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The average start-up loan backed by a personal guarantee, according to Purbeck, was £181,350 in £2022, broadly flat on 2021. However, the value of loans being secured by start-ups in 2023 has dropped, with the average loan standing at £166,534.
The research comes amid growing calls to improve small businesses’ access to finance.
Last month, the Treasury Committee launched a new inquiry into small business access to finance and small and medium-sized enterprise (SME) lending.
The MPs will investigate the accessibility of finance, the role of financial innovation in business lending, and the role of the Bank of England’s Term Funding Scheme, credit reference agencies and government state aid in encouraging small business lending.
Read more: Record 30pc of small firms offered finance at 11 per cent or more in Q2
“For some people, signing a personal guarantee is part and parcel of the risks involved in starting a business, for others it is a source of stress and anxiety, not just for themselves but for their families too,” said Todd Davison, managing director of Purbeck.
“If a start-up owner/founder doesn’t want to sign a personal guarantee, their funding options become quite limited.”