Recent data on personal guarantee insurance (PGI) applications for business loans highlights the challenges faced by SMEs in accessing finance. The Purbeck Personal Guarantee Insurance Monitor’s Q2 2023 report reveals a notable decline in the number of applications for insurance to secure personal guarantee backed loans among small and medium-sized business owners. This marks the first recorded fall since data collection began in Q1 2021.
In comparison to Q1 2023, Q2 2023 experienced a 13% decrease in applications, breaking the trend of consistent quarterly rises in applications received by Purbeck Personal Guarantee Insurance over the past two years.
Additionally, the data indicates a drop in business acquisition activity within the SME community during the latest quarter, with only 5% of PGI applications for business loans sought for this purpose, in contrast to 13% in Q1 2023.
Nevertheless, when observing the year-on-year trend, the volume of PGI applications has seen a significant 55% increase, highlighting the growing reliance on business directors/owners signing personal guarantees to secure funding.
Key Facts:
- In Q2 2023, applications for personal guarantee insurance decreased by 13% compared to Q1 2023.
- Year on Year (Q2 2023 vs. Q2 2022), there has been a noteworthy 55% increase in applications.
- Applications in June 2023 alone were up by an impressive 78% compared to June 2022.
- The main reasons for seeking funding are working capital (33%), followed by investment in growth initiatives (14%), and development (10%).
- Applications for funding acquisitions reduced to 5% in Q2 2023 from 13% in Q1 2023, while refinancing has experienced successive quarterly declines since Q2 2022.
- Unsecured loans represent the primary type of loan where Personal Guarantee Insurance is required, accounting for 37% of applications in Q2 2023.
- Loans up to £50k constitute 25% of applications, and loans ranging from £175k to £200k account for 10%.
These findings emerge as a cross-party Committee of MPs embarks on an examination of the key challenges that SMEs encounter in their pursuit of 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, commented, “The decrease in quarterly personal guarantee insurance applications for loans coincides with MPs investigating the issue of SMEs’ access to finance. Rising interest rates add further complexity to the decision of taking on a loan, especially when a personal guarantee is demanded as security. It’s essential to remember that this security often involves the business owner’s home, and uncertainties surrounding home values and mortgage payments could be causing increased caution.”
Davison continued, “We wholeheartedly support any initiatives aimed at improving lending to small businesses. Personal Guarantee Insurance provides business owners with the confidence to pursue business loans without jeopardising their personal assets. It stands as an example of innovation in small business finance that the cross-party Committee will undoubtedly explore, along with potential solutions to enhance loan repayment affordability.”
