Demand for personal guarantee-backed financing from small businesses doubled in March 2022 as businesses grappled with rising costs according to Purbeck Personal Guarantee Insurance.
Applications for personal guarantee insurance to support small business financing increased by 50.5% in Q1 2022 compared to Q1 2021 and in March 2022 alone, applications increased by 108% compared to March 2021.
This new analysis of small business financing highlights how Brexit, skills shortages, rising material and fuel costs are all depleting cash reserves, with “working capital” financing being the main reason for a loan to small businesses.
Purbeck found that in the first quarter of 2022, the largest proportion (35%) of financing requests with a personal guarantee were for “working capital”, outpacing any other reason for new financing. Applications for personal guarantee insurance to support “working capital” financing increased by 88% in the first quarter of 2022 compared to the first quarter of 2021.
While ‘working capital’ is the main reason for financing, small businesses also get new financing to support ‘development’ and for ‘investment in growth initiatives’. Indeed, funding requests for ‘Development’ increased by 69% from Q1 2021 to Q1 2022.
Small business owners are also borrowing more year after year. Purbeck’s analysis shows the average loan size rose from £142,718 in Q1 2021 to £174,104 in Q1 2022, a jump of 22%. In fact, one in five loan applications (19%) were for loans of £375-400,000 in Q1 2022 – a significant increase on Q1 2021, with application volumes for this loan value increasing by 160% .
Unsecured loans have also grown in popularity and are the main type of secured financing for small businesses – 39% of all loans secured by personal insurance were of this nature in the first quarter of 2022, compared to 28% in the first quarter of 2021.
Todd Davison, MD of Purbeck Personal Guarantee Insurance, said: “While there is obviously concern that small businesses are taking on more debt, the fact that applications for personal guarantee insurance to support this financing have increased so substantially from year to year must be considered a positive.
“These business owners typically run well-established businesses that have been in business for an average of 14 years and employ around 28 people. They are incredibly responsible in taking steps to protect their assets should their business fail.
“Access to finance is increasingly dependent on the business owner signing a personal guarantee, so it’s critical that small business owners understand how they can mitigate risk to give them the confidence they need. to get the new financing they need – whether to sustain the business through these difficult economic times, or to grow.