Businesses putting themselves at risk when applying for finance

The latest British Bank Business Report paints a worrying picture of the risks small businesses take to secure finance for their business. Purbeck Insurance Services is urging the owners and directors of small businesses to seek professional advice before committing to a finance arrangement for their business.

Pete Faulkner, Director of Purbeck Insurance Services said: “The British Bank Business Report shows well over half of small and micro businesses have sought external finance in the past 3 years and 81% didn’t seek any external advice. This might be for all kinds of reasons but with a third (35%) signing a Director Personal Guarantee, it’s clear many Directors of small business are putting their homes and other assets on the line without knowing what they can do to limit the risk of losing almost everything they own.

“Personal Guarantee insurance has only become available to SMEs in the past couple of years so many owners and Directors of small businesses are simply unaware it exists. This is where professional advice has a real value.”
Personal Guarantee Insurance offers protection against the risk that the Guarantee is called by a lender and will offset any outstanding obligations called in under a Personal Guarantee. The level of cover is based on a fixed percentage of the Personal Guarantee the company director wishes to insure and this is dependent on whether the corresponding finance facility is secured or unsecured.

Pete Faulkner concludes: “A common misconception is that the premium is paid by the owner or Director. This is not the case, the premium is treated as part of the finance arrangement and paid for by the business – it is for the business after all.”

British Bank Business Report findings:
In the last three years:
•54% of micro businesses sought external finance;
•62% of small businesses sought external finance; and
•71% of medium businesses sought external finance
•85% of SMEs who applied for finance in 2018 were offered some form of finance (82% being all the finance they applied for)
•For business finance “security” was required in 73% of applications
•When security was required, a Director Personal Guarantee was most often required (35%), followed by Other Personal Assets (23%)
•81% of SMEs didn’t seek external advice when applying for finance

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David Dungay

Editor - Comms Business Magazine