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Bitter pill or acceptable risk: The Role of Personal Guarantees in the SME Lending space
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Purbeck Personal Guarantee Insurance launches white paper to support FCA investigation and help SMEs navigate personal guarantees with confidence
May 2024: As 60%[i] of SME owners admit to not feeling confident about the risks of personal guarantees, Purbeck Personal Guarantee Insurance, the UK’s sole provider of insurance protection for personal guarantees, has launched a white paper ‘Bitter pill or acceptable risk: The Role of Personal Guarantees in the SME Lending space’. Setting out the pros and cons of Personal Guarantees as part of the small businesses lending landscape, the white paper has been submitted to the FCA for consideration in its investigation into SME lending practices.
Whether funding is required to start, sustain, or expand a business, lenders are increasingly requiring personal guarantees from the directors of small and medium sized businesses as security. According to the latest analysis of applications for personal guarantee insurance in Q1 2024 by Purbeck Personal Guarantee Insurance, there has been a 49% rise in business owners seeking Personal Guarantee Insurance (PGI) for a small business loan. And most of these were for loans to simply keep their business running.
Purbeck Personal Guarantee Insurance is urging small business owners not to be deterred by the spectre of a personal guarantee. Instead, SME owners, through the white paper, can build their knowledge about risk mitigation strategies associated with personal guarantees. Strategies may include sharing the guarantee with a co-director, guaranteeing only a portion of the loan, or obtaining personal guarantee insurance.
Comments Todd Davison, MD of Purbeck Personal Guarantee Insurance: “The importance of proportionate and appropriate requests for personal guarantees cannot be overstated. As we await the outcome of the FCA’s review of small business lending, proactive measures can be taken. By implementing suitable risk mitigation strategies, small business owners can alleviate concerns surrounding personal guarantee backed loans and instead view them as avenues for growth and opportunity. We hope our white paper assists the FCA in its investigations while also helping to build greater confidence in securing personal guarantee backed loans.”
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[i] Research commissioned by Purbeck Personal Guarantee Insurance of small businesses, conducted in April 2023 and January 2024
A personal guarantee is a promise made by an individual to repay a loan or debt if the primary borrower defaults. It is often required by lenders as a form of security.
Personal guarantee insurance protects business owners from the financial risks associated with personal guarantees. It provides coverage in case the business defaults on its loans.
Risk mitigation strategies are methods used to reduce the potential impact of risks. In SME lending, this may include sharing guarantees or obtaining insurance.
The Financial Conduct Authority (FCA) regulates financial firms in the UK to ensure they operate fairly and transparently, protecting consumers and maintaining market integrity.
SME lending refers to the provision of loans and credit to small and medium-sized enterprises, which are crucial for economic growth and job creation.
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