‘Keep your hands off my home’ – Start-ups get cash injection of £25m without risk of personal guarantee

Financial Services | Funding | South East | South West

As Companies House data[i] shows a rise in start-ups born during the pandemic, new figures from Purbeck Insurance Services reveal savvy entrepreneurs in the UK collectively secured £25m of funding for a new venture in the past three years through personal guarantee backed loans that were protected by Personal Guarantee insurance.

That means if the business does fail, 80% of the loan will be settled by the insurance rather than the business owner’s home, savings and other personal assets being called on to settle the debt.

As access to small business funding is increasingly expected to depend on signing a Personal Guarantee, Purbeck is urging start-ups to factor Personal Guarantee Insurance into their thinking when shopping for finance.

Todd Davison, MD of Purbeck Insurance Services said: “For many, borrowing money is their only way of starting and growing a business. Creating a business is risky enough without taking on a personal guarantee backed loan to get it off the ground, making you personally liable for the company’s debt in the case of a default. However, there are now ways to moderate the risk having signed a Personal Guarantee, in the form of Personal Guarantee Insurance and our figures show UK entrepreneurs have become increasingly switched on to this kind of protection.”

Purbeck’s Top 5 Tips to Start-up Finance

1. Consider all the options
Take some time to consider all of your options, including alternative lenders who offer more specialist services. Be led by the finance option which best matches your company objectives and personal risk mindset.

2. Get your figures straight
Whatever route you go down to obtain financing for a small business, bear in mind that you’re going to be quizzed on your company’s figures; past, present and future. If you’re going to provide a 12-month cash flow projection, make sure that it’s not overly ambitious as this can make you come across as a little naïve at best, dishonest at worst.

3. Be honest and upfront
Company credit reports ensure that key information about your business, past or present is available to relevant parties upon request. If you’ve experienced an issue over the course of operating as a business, it’s much better to be upfront and honest with potential lenders, and provide some context and reasoning as to why it happened – plus how you managed to find a solution to overcome it.

4. Have a strong company credit score
With lenders being so heavily led by a company’s credit score, you want to make sure that you go into any borrowing discussions with your strongest possible hand. A healthy credit score is made up of three key elements: robust information, sound financial management and regular monitoring.

So, prior to applying for finance, make ensure you’re paying invoices on time wherever possible and keeping customers, suppliers and other company stakeholders up to date on any important changes in how the business is operating.

5. Be prepared to offer some form of security
Most lenders require some form of security on the money that they’re lending – if the borrower can no longer repay the loan, then the lender wants to maximise the likelihood of getting their money back.

Lenders cover their risk by getting directors to sign Personal Guarantees, often against the value of their houses. Personal Guarantee Insurance moderates the risk by incrementally mitigating against potential financial loss.

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