7.8 C
Lancashire
Saturday, April 13, 2024

New Study Unveils: 49% of Small Business Owners Tied Down by Personal Guarantees

  • Nearly half (49%) of small business owners either act as personal guarantors for a business loan or have intentions to become guarantors by the end of this year.
  • A significant majority (50%) of small business owners in 2023 have already secured or are in the process of securing new finance to support their ventures.
  • Among these business owners, 42% specifically require the funds to settle existing debts.
  • Personal guarantees can be an effective strategy for small businesses, provided they take measures to minimise potential risks.

Underlining the high stakes involved in being a small business owner in 2023, a new survey has uncovered that over a third (34%) have put their home and life savings on the line for their business by signing a Personal Guarantee for a business loan. If their business fails, they risk losing everything.  Furthermore, 15% of those surveyed anticipate becoming a personal guarantor for a business loan within the year. The findings of the survey by Purbeck Personal Guarantee Insurance (conducted amongst 400 owners and managers of small businesses across the UK, 28th April 2023), demonstrates how difficult it has become for small business owners to access funding without taking the serious step of signing a personal guarantee.

Worryingly, the survey also found that while half of small businesses plan to secure new finance this year, 53% of these small business owners are borrowing to ease cash flow and 42% need the money to pay off existing outstanding debt.

Raising finance in a struggling economy is not easy and while the survey found that 43% will seek finance from a traditional lender in the form of a business loan, 28% plan to use their credit cards and 28% plan to use overdrafts to help fund their business.  In addition, 1 in 5 (21%) will ask friends or family for cash.

Todd Davison, MD of Purbeck Personal Guarantee Insurance said: ”In today’s turbulent economy, it will come as no surprise that small business owners are seeking additional finance but it has become increasingly difficult, since the Pandemic, for a small business to find funding without a personal guarantee requirement. It is vital that business owners fully understand the risks of signing a personal guarantee and importantly how to mitigate them.  This can range from sharing the risk to using personal guarantee insurance to help settle the debt, should the business fail.  So far in 2023, we have seen more SME owners apply for personal guarantee insurance (PGI) to mitigate the risk of business failure, than at any time previously.”

Personal guarantee insurance (PGI) is an insurance product used by small business owners to protect against the risk of a personal guarantee being called in for a business loan, if the business becomes insolvent.

Five ways a personal guarantee can work for a business:

  1. Before signing a personal guarantee on a loan, independent advice should be obtained from an accountant, solicitor or personal broker who can advise on ways personal risk might be cut.
  2. It is beneficial to establish if the personal guarantee can be shared amongst co-directors so the risk is not shouldered by one person.
  3. Ask the lender if a time limit can be agreed for the guarantee or a cap on the amount, but remember, if interest rates rise, costs added to the debt can mount up.
  4. See if there is the option to guarantee part of the loan meaning that settlement of the debt is sought first from the company’s assets, before enforcing the guarantee.
  5. Consider personal guarantee insurance to mitigate the risk which means that, in the event of a business failure, 80% of the loan will be settled by the insurance rather than the business owner’s personal assets.
spot_imgspot_img

Latest

BetVictor Promo Code – Bet 10 Get 10 for Grand National 2024

Various Grand National betting offers are usually available during...

Grand National 2024: CopyBet New Customer Offer Bet 10 Get 50

During this great festival, there tends to be a...

Grand National Betting Sites: William Hill Bet £10 Get £10 for Grand National

The Grand National is one of the most exciting...

Jack Mason gives his thoughts on entering the world of entrepreneurship

Whether you’re thinking about starting your new side hustle...
spot_img

Subscribe to our newsletter

Business Lancashire will use the information you provide on this form to be in touch with you and to provide updates and marketing.

Don't miss

Could Zeki Amdouni’s Switzerland Be a Surprise Package at Euro 2024?

UEFA Euro 2024 is just around the corner and...

Jack Mason gives his thoughts on entering the world of entrepreneurship

Whether you’re thinking about starting your new side hustle...

New head of operations for Lancaster and Morecambe Chamber of Commerce

A new senior staff member has been appointed to...

More News

Jack Mason gives his thoughts on entering the world of entrepreneurship

Whether you’re thinking about starting your new side hustle or already on the entrepreneur path, you’ll know that achieving success is exciting and challenging.   We...

New head of operations for Lancaster and Morecambe Chamber of Commerce

A new senior staff member has been appointed to lead Lancaster and Morecambe Chamber of Commerce. Graham White has joined the chamber as its new head...

Book Technologies Inc. Takes Over Leeds and Manchester Taxi Companies

In a notable development, Book Technologies Inc. has acquired Leeds Taxi Group Limited and Manchester Taxi Group Limited. The companies' founder, Cash Haleem, assures...