New data from Purbeck Insurance Services reveals a notable decline in the value of personal guarantee-backed loans for small businesses in the UK during the third quarter of 2024. As firms navigate an increasingly uncertain economic landscape, borrowing habits are shifting in response to rising energy prices and impending budget announcements.
The latest Personal Guarantee Insurance Monitor highlights that the average loan amount for start-ups—businesses under two years old—has fallen by a staggering 38% year-on-year, now standing at £94,265. This represents the lowest recorded value to date for loans issued to start-ups. Overall, the average value of personal guarantee-backed small business loans decreased by 17.5%, dropping to £204,635 compared to the same period last year.
Despite an increase of 43% in the number of applications for personal guarantee-backed loans, the average loan amount indicates a cautious approach among small businesses. Todd Davison, Managing Director of Purbeck Insurance Services, noted that “small businesses are facing big uncertainties as we head into Winter 2024/2025.” He attributed the trend to a prudent stance on debt, as businesses are wary of taking on obligations they may struggle to service in the current climate.
Working capital remains the primary reason for seeking these loans, with 38% of applications aimed at supporting cash flow and operational costs. However, the report also raises concerns about the broader economic implications, highlighting a decline in applications for loans to fund growth initiatives, which fell from 19% in Q2 to just 13% in Q3 2024. This shift suggests a growing caution among small firms, which may affect future investment and expansion plans.
Most loan applications, at 41%, were for unsecured loans that still require a personal guarantee, while 19% were for secured or asset-backed lending. The lower overall value of loans requested is also reflected in a significant drop in commercial mortgages and asset finance, reaching their lowest levels in a year.
As small businesses continue to adapt to these economic challenges, the demand for personal guarantee insurance is increasing. On average, business owners are seeking £170,608 in personal guarantee insurance protection, up from £152,039 in the same quarter last year. This increase indicates a recognition of the financial risks associated with taking on loans, with business owners keen to mitigate personal liability.
Davison stressed the importance of small businesses to the UK economy, stating that they are “the lifeblood of the economy and they need access to the funding they need to invest and grow.” He emphasised that while businesses are exercising caution, the appetite for new finance remains, and the demand for personal guarantee insurance illustrates a proactive approach to managing financial risk.
As the Budget Day approaches, many small businesses appear to be “treading water,” awaiting clarity on government financial policies. The findings from the Q3 2024 Personal Guarantee Insurance Monitor underscore the need for continued support for small enterprises, which play a crucial role in driving economic growth.