The latest Purbeck Personal Guarantee Insurance (PGI) Monitor reveals a concerning trend for small business owners in the UK.

Over 34% of owners and directors of small businesses found themselves compelled to sign a personal guarantee in the final quarter of 2023 to keep their businesses afloat. This marks the highest level recorded for the whole of 2023, according to the quarterly analysis.

In a clear indication of the financial challenges faced by small businesses, the PGI applications in Quarter 4, 2023, primarily aimed at securing working capital, reached a staggering 67.5% increase compared to the previous year. The rising reliance on personal guarantees underlines the difficulties in obtaining small business loans.

The Purbeck Personal Guarantee Insurance monitor, the only quarterly analysis of personal guarantee-backed loans, shows a significant shift in the landscape. For the full year 2023 compared to 2022, there was a remarkable 67.5% surge in applications for personal guarantee insurance. Furthermore, comparing Q4 2023 to Q4 2022, applications rose by 63%.

Notably, new businesses, trading for less than two years, accounted for just 10% of the applications, the lowest recorded number since Purbeck’s launch in 2017. This data reflects the challenging environment for new businesses to secure funding.

Additionally, 45% of the applications were for unsecured loans, the highest recorded level. Unsecured loans signify a precarious financial situation for small businesses, where there isn’t sufficient capital or assets in the business to cover the debt, making it riskier for lenders.

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This news aligns with the Federation of Small Businesses (FSB) report on a tightening credit environment for SMEs, with only 53% of credit applications proving successful in the last quarter. Simultaneously, as SMEs grapple with limited access to new finance, the latest company insolvency figures hit their highest level since 1993.

Todd Davison, Managing Director of Purbeck Personal Guarantee Insurance, said: “The rise in the number of founders and directors applying for PGI to support unsecured loans is indicative of the way personal guarantees have become part and parcel of lending to small businesses. It also highlights the precarious nature of running a small firm.”

Davison further attributed the challenges to factors such as inflation, the energy crisis, government support cuts, and supply chain issues, emphasizing how Personal Guarantee Insurance has become crucial in mitigating the risks associated with providing a personal guarantee, enabling smaller businesses to access the necessary funds.

FSB launches super-complaint against excessive personal guarantees by banks