Decline in Personal Guarantee Backed SME Finance Evident in Q2 2023

Last Updated on: 22nd November 2023, 04:14 am

The latest data on personal guarantee insurance (PGI) applications for business loans sheds light on the hurdles faced by SMEs in accessing finance. The Purbeck Personal Guarantee Insurance Monitor for Q2 2023 has reported the first recorded decrease in the number of applications for insurance for personal guarantee backed loans among small and medium-sized business owners since data collection began in Q1 2021.

In Q2 2023, there was a notable 13% reduction in applications compared to Q1 2023, marking a shift from the consistent quarterly increases observed over the past two years in the volume of applications received by Purbeck Personal Guarantee Insurance.

Moreover, the data indicates a decline in business acquisition activity within the SME community during the latest quarter, with only 5% of PGI applications for a business loan being intended for this purpose, down from 13% in Q1 2023.

However, on a year-on-year basis, the overall volume of applications has shown a significant 55% increase. This highlights the growing reliance on a director or owner of a business signing a personal guarantee as a means to access funding.

Key Facts:

  • Q2 2023 witnessed a 13% decrease in applications for personal guarantee insurance compared to Q1 2023.
  • Year-on-year, there has been a remarkable 55% surge in applications for Q2 2023 compared to Q2 2022.
  • In June 2023 alone, applications soared by 78% compared to June 2022.
  • The primary reasons for funding include working capital (33%), investment in growth initiatives (14%), and development (10%).
  • Funding for acquisitions has dropped to 5% of applications, down from 13% in Q1 2023, while refinancing has decreased since Q2 2022.
  • Unsecured loans constitute the main type of loan requiring Personal Guarantee Insurance, accounting for 37% of applications in Q2 2023.
  • 25% of loans fall within the range of up to £50k, and 10% are for loans between £175k and £200k.

These findings come amidst the scrutiny of a cross-party Committee of MPs, who will examine the key challenges faced by SMEs in seeking finance, the regulation of small business lending, and the government’s role in enhancing lending to small businesses.

Todd Davison, MD of Purbeck Personal Guarantee Insurance, stated, “The decline in the volume of applications for personal guarantee insurance aligns with MPs investigating access to finance for SMEs. Rising interest rates make the decision to take on a loan even more precarious, particularly when a personal guarantee is demanded as security. Often, the security may be the business owner’s home, and uncertainties surrounding home values and mortgage payments contribute to increased caution.”

“We strongly support any initiatives to improve lending to small businesses. Personal Guarantee Insurance provides business owners with the confidence to pursue business loans without risking their personal assets. It exemplifies innovation in small business finance, an aspect that the cross-party Committee will undoubtedly explore along with potential options to enhance the affordability of loan repayments.”

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