Rise in Business Creation Sparks Finance Stacking Fears

As ONS data shows an unprecedented rise in new company registrations in Q1 2021 versus Q1 2020[i] continuing a trend seen in 2020 – ‘the year of the start-up’[ii] – a Purbeck Personal Guarantee Insurance survey has revealed that 70% of start-ups[iii] have secured or are planning to secure finance in 2021 to help support cashflow. Amongst these businesses, 37% of the owners or directors surveyed have already signed Personal Guarantees in 2020 to access finance, raising fears of loan stacking and multiple personal guarantees signed by one individual.

As access to small business funding is increasingly expected to depend on signing a Personal Guarantee, Purbeck is urging start-ups to factor Personal Guarantee Insurance into their thinking when shopping for finance.

Todd Davison, MD of Purbeck Personal Guarantee Insurance said: “It is not uncommon for directors and owners to sign multiple Personal Guarantees but clearly there are serious ramifications if things go wrong given we are still in the midst of a great deal of pandemic related uncertainty and disruption caused by Brexit.

“The good news is that Personal Guarantee Insurance is stepping in to reduce the risk as savvy entrepreneurs in the UK collectively secured £35 million of funding for a new venture in the past three years through personal guarantee backed loans that were protected by Personal Guarantee insurance. This means if the business does fail, 80% of the loan will be settled by the insurance rather than the business owner’s home, savings and other personal assets being called on to settle the debt.

Top funding routes for start-ups in 2021[iv]:

Recovery Loan Scheme for under £250,000 – 30%
Credit Card facility – 27%
Recovery Loan Scheme for £250,000 or over – 23%
Alternative finance provider – 15%
Overdraft – 13%
Friends/family – 10%
Asset finance – 9%
Crowdfunding – 8%
Invoice finance/factoring – 7%
Other loan secured by debenture or charge – 6%

Todd Davison continues: “Creating a business is risky enough without taking on a personal guarantee backed loan to get it off the ground, making you personally liable for the company’s debt in the case of a default. However, Personal Guarantee Insurance can moderate the risk and our figures show UK entrepreneurs have become increasingly switched on to this kind of protection.”

Purbeck is the only insurer offering personal guarantee insurance to small business owners which can be purchased for an existing guarantee, or as finance is taken out. Cover provides up to 60% of the debt value in year one, rising to 70% in year two to a maximum of 80% in year three, and premiums can be flexed depending on the policyholder’s credit rating.

Since launch, Purbeck Personal Guarantee Insurance has protected over £120 million in Personal Guarantees, giving business owners and directors the confidence to secure finance knowing that if the business fails, the majority of the loan would be paid off without risk to their home and assets.