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With 60% of SME owners expressing uncertainty about the risks associated with personal guarantees, Purbeck Personal Guarantee Insurance has unveiled a White Paper titled ‘Bitter Pill or Acceptable Risk: The Role of Personal Guarantees in the SME Lending Space’.

This document outlines the advantages and disadvantages of personal guarantees within SME lending and has been submitted to the Financial Conduct Authority (FCA) for its ongoing investigation into SME lending practices.

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As lenders increasingly require personal guarantees from SME directors for securing loans, the demand for insurance protection is on the rise. Purbeck Personal Guarantee Insurance’s latest analysis reveals a 49% increase in applications for personal guarantee insurance (PGI) in Q1 2024, predominantly for loans aimed at maintaining business operations.

Purbeck is encouraging SME owners to not shy away from personal guarantees but instead to educate themselves on risk mitigation strategies. These strategies include sharing the guarantee with a co-director, guaranteeing only a portion of the loan, or obtaining personal guarantee insurance.

Todd Davison, Managing Director of Purbeck Personal Guarantee Insurance, stated: “The importance of proportionate and appropriate requests for personal guarantees cannot be overstated. As we await the FCA’s review of small business lending, proactive measures can be taken.

By implementing suitable risk mitigation strategies, small business owners can alleviate concerns surrounding personal guarantee-backed loans and instead view them as avenues for growth and opportunity.

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We hope our white paper assists the FCA in its investigations while also helping to build greater confidence in securing personal guarantee-backed loans.”

Lenders are demanding personal guarantees on loans under £10,000 in value