Applications for personal guarantee backed small business loans up 50%
Demand for personal guarantee backed finance from small businesses doubled in March 2022, as firms grappled with rising costs according to Purbeck Personal Guarantee Insurance. Applications for Personal Guarantee Insurance to support small business funding rose 50.5% Q1 2022 vs Q1 2021 and in March 2022 alone, applications rose 108% on March 2021.
This new analysis of small business finance underlines how Brexit, skills shortages, rising material and fuel costs are all depleting cash reserves with finance for ‘Working Capital’ the main reason for a small business loan. Purbeck found that in the first Quarter of 2022, the biggest proportion (35%) of finance applications with a personal guarantee attached were for ‘Working Capital’, surpassing any other reason for new funding. Applications for personal guarantee insurance to support funding for ‘Working Capital’ were up a huge 88% in Q1 2022 vs Q1 2021.
While ‘Working Capital’ is the main reason for funding, small businesses are also securing new finance to support ‘Development’ and for ‘Investment in Growth Initiatives’. Indeed, applications for finance for ‘Development’ grew 69% from Q1 2021 to Q1 2022.
The owners of small businesses are also borrowing more year on year. Purbeck’s analysis shows the average loan amount has risen from £142,718 in Q1 2021 to £174,104 in Q1 2022, a jump of 22%. In fact, one in five loan applications (19%) were for loans of £375-400K in Q1 2022 – a significant increase on Q1 2021, with application volumes for this value of loan rising 160%.
Unsecured loans have also risen in popularity and are the main type of finance secured by small businesses – 39% of all personal guarantee insurance backed loans were of this nature in Q1 2022 compared to 28% in Q1 2021.
Todd Davison, MD of Purbeck Personal Guarantee Insurance said: “While there is obviously a concern that small businesses are becoming more indebted, the fact that applications for personal guarantee insurance to support this finance have risen so substantially year on year must be seen as a positive. These business owners are typically leading well-established businesses that have been in operation for 14 years on average and have in the region of 28 people working for them. They are being incredibly responsible by taking steps to protect their assets, should their business ultimately fail.
“Access to finance is increasingly reliant on the business owner signing a personal guarantee so it is vital small business leaders understand how they can mitigate the risks to give them the confidence to secure the new finance they need – whether that’s to sustain the business through this challenging economic period, or to grow.”