The barriers SMEs face in accessing finance have become clear in the latest data on personal guarantee insurance (PGI) applications for business loans.
The Purbeck Personal Guarantee Insurance Monitor for Q2 2023 has recorded the first recorded fall in the volume of applications for insurance for personal guarantee backed loans by small and medium sized business owners. This is since data collection began in Q1 2021.
In Q2 2023 compared to Q1 2023, there were 13% fewer applications after two years of consistent rises each quarter in the volume of applications being received by Purbeck Personal Guarantee Insurance.
The data also suggests business acquisition activity in the SME community has fallen in the latest quarter – just 5% of applications for PGI for a business loan was for this purpose compared to 13% in Q1 2023.
However, year on year the volume of applications has increased by 55%. This demonstrates how access to funding has become increasingly reliant on a director/owner of a business, signing a personal guarantee.
In Q2 2023, applications for personal guarantee insurance have fallen 13% compared to Q1 2023 and Year on Year Q2 2023 vs Q2 2022 there has been a 55% increase in applications.
In June 2023 alone, applications were up 78% on June 2022 and working capital is the main reason for funding (33%) followed by investment in growth initiatives (14%) and development (10%).
Funding for acquisitions has fallen back to 5% of applications compared to 13% in Q1 2023 and refinancing has fallen in successive quarters since Q2 2022.
Unsecured loans are main type of loan where Personal Guarantee Insurance is needed – 37% of applications in Q2 2023 were for this type of loan and 25% of loans are for up to £50k, 10% are for loans £175 – 200K
The findings have been published as a cross-party Committee of MPs will examine the key challenges SMEs face when seeking finance, the regulation of small business lending, and the role the government can play in enhancing lending to small businesses.
Todd Davison, MD of Purbeck Personal Guarantee Insurance said: “It’s no coincidence that a quarterly fall in the volume of applications for personal guarantee insurance for loans comes as MPs look into the issue of access to finance for SMEs.
As interest rates continue to rise, the decision to take on a loan becomes all the more precarious, especially when a personal guarantee is demanded as security. Let’s not forget, security may often be the business owner’s home and there is a great deal of uncertainty around home values and mortgage payments which will be creating increased caution.
“We strongly support any moves to improve lending to small businesses. Personal Guarantee Insurance exists to give business owners confidence to take on business loans without putting their personal assets at risk. It is an example of innovation in small business finance that the cross-party Committee will want to explore along with options to improve the affordability of loan repayments.”
