Some SME founders are putting everything on the line

AS THE deadline for the inquiry into SME finance nears, the founders of UK start-ups are facing increasing demands to personally guarantee business loans.

Applications for personal guarantee insurance (PGI) were analysed by Purbeck Personal Guarantee Insurance. It found that the number of founders taking insurance to protect their personal assets rose by 46 percent in 2022 — and that looks set to rise again.

With PGI, if a business fails, 80 percent of the loan will be covered by insurance — rather than the owner’s home, savings, or other personal assets. The study found that founders are becoming savvy about the risks, and taking steps to mitigate them.

The average start-up loan backed by a personal guarantee last year, according to Purbeck, was £181,350. This was almost unchanged from 2021, when it was £181,307. But in 2023, the value of secured loans dropped to an average of £166,534.

MD Todd Davison says that for some people, signing a personal guarantee is part-and-parcel of starting a business. For others, it’s a source of stress and anxiety. If a founder doesn’t want to sign up for that, their funding options are limited — but it shouldn’t be a barrier to getting finance.

“We’re seeing a growing number of start-ups turning to PGI,” says Davison. Entrepreneurs in the UK collectively secured £66m in funding in the past four years via personal guarantee-backed loans.

He advises start-up founders to seek independent expert advice and look at the ways to mitigate risk.