The impact of Personal Guarantee Insurance in 2019
With the uncertainties of Brexit still looming over the UK’s small businesses, it appears that some firms are holding off substantial investment until the picture becomes clearer.
Lending to SMEs shrank from £700m in 2017 to £500m last year, according to a report from the British Business Bank. The picture isn’t unlikely to improve any time soon, with more than a third of small businesses expecting Brexit to make it more difficult to access finance.
For finance facilitators, then, the challenge is twofold: to provide a risk-mitigating solution, encouraging small businesses to invest for growth in this uncertain economic climate, while improving the security of the lender’s lending book.
Personal Guarantee Insurance can do both. By covering the borrower’s risk in the event of a Personal Guarantee being called in, insurance guarantees lenders a percentage (up to 80%) of their loan is repaid to them.
SMEs play it ‘safe’
As a condition of raising business finance, directors are increasingly being asked to sign a Personal Guarantee. But the prospect of putting their personal assets on the line could see directors defer making any big investment decisions for at least 12 months.
While not all directors are overly concerned about the shape of the economy – four in ten SMEs don’t think that Brexit will affect them in the slightest – they might still be inclined to play it ‘safe’ and use any cash reserves to fund growth, rather than seek external finance and put their personal estates at risk.
Somewhat ironically, if all SMEs were to refrain from heavy investment, it could be counterproductive for the economy – but businesses can rarely afford to think as a collective.
Representing over 99% of UK businesses, SMEs provide 60% of private sector jobs and account for almost 50% of all private sector turnover. Our SMEs drive up growth and provide high-skilled jobs across the country, and together they form the cornerstone of a vibrant, twenty-first century economy.
When they stagnate, so too does the economy. Britain’s economy looks set for its weakest growth in 10 years in 2019, according to Bank of England projections.
Could PGI help drive the economy?
Personal Guarantee Insurance provides business directors with cover if, following insolvency of their business, the lender calls on their Personal Guarantee.
Knowing that they’re protected in the event that things don’t play out as planned, directors might be more inclined to sign a Personal Guarantee in order to fund the growth of their business.
Available against a wide range of business loans (both secured and unsecured), Personal Guarantee Insurance could feasibly play a part in helping the UK economy regain some momentum. After all, the more money UK SMEs are generating, the stronger the economy.
Instead of SMEs playing it safe – which could prove costly for them if it results in missed opportunities, competitors gaining an upper hand, and becoming over dependent on a small customer base – Personal Guarantee Insurance moderates their risk so that they can make their move now and invest for growth.
Purbeck Insurance is a specialist Personal Guarantee Insurance underwriter, authorised and regulated by the Financial Conduct Authority. We work alongside lenders and brokers to provide a bespoke insurance solution based on the lender’s individual requirements and risk profile. Please contact one of our specialists today to learn more on 0208 004 7250.