Insurance Edge met online with Todd Davison, MD of Purbeck Insurance Services, to learn more about how small business owners and directors can insure the risk they take by signing a personal guarantee for a business loan.
IE; It’s a topical time for a meet-up like this, given many small businesses will be finding their cash reserves are running dry and some of the Government’s support measures are scaling back. How easy do you think it will be for businesses to get new finance? Will it become more dependent on signing a Personal Guarantee?
TD; It is an interesting time as grants and Bounce-back Loans have offered support to many smaller businesses. The furlough scheme has been a real lifesaver for many small companies too. But some lenders will become more risk averse when lending to small businesses and therefore access to new finance may increasingly depend on the owners or directors signing a personal guarantee, putting their personal assets on the line if the business fails.
That’s where we can help. What Purbeck are doing is unique really, we want to be champions for UK SMEs. In addition to offering insurance against the risk of signing a personal guarantee we also provide mentoring support and advice for policyholders in financial distress to try to help avoid a claim. It is as much in our interests to help a business survive as it is theirs.
IE; It’s much more than just an insurance policy that’s rated on pure asset value then?
TD; Absolutely. Purbeck likes to get involved with the business and find out what its key strengths are. Often there’s a strong strategy for the future, but the finance has to be there to kick-start that process. We have to see the financials to a certain extent, because that is part of the risk on our side. On the company side, the benefit of having Purbeck on their side is that new ideas on cost-savings, invoice-control and more can all help the immediate situation when finances come under pressure.
IE: So how do you rate that overall risk then?
TD: There are balance sheet indicators that we need to have. Then there could be information on suppliers, future orders or sales projections, plus the value of assets being offered as loan security. The whole process takes a matter of minutes online, with a decision in principle usually about 5-8 minutes in total. Then we can usually offer a very quick decision.
Assuming we go ahead, we allocate two underwriters to work with the client and do all due diligence. You have to take time because some accounts at Companies House might be say 12 months old, or more, and so you have an obligation to get the fullest possible picture of the business, not just the assets.
IE; I guess that level of help is very much a partnership, not just a case of being a finance provider?
TD; We are building relationships with clients, not just insuring an asset. You have to win trust and I think you do that by proving that you want the business to succeed, help transform things if that’s what’s needed. That way, you really do build customer loyalty.
We recently helped a trampoline business and put them in touch with another, similar company active in the same sector. Obviously activity centres have been hit hard by the Lockdown but the second company was able to offer some very useful advice to our client and make them aware of help from different sources. We all benefit if companies can keep going through hard times, that’s what it’s all about.
IE; Do you think the new measures announced in the summer statement will help?
TD; To a degree , but at some point in 2021, whatever the support is for different sectors of the UK economy, every company will have to stand on its own again, and make a profit or seek finance to manage its debt and survive. We see a rising demand for asset-backed finance in general as government grants and loans schemes are gradually wound down. It’s been a fantastic boost for business in difficult times, but there will be an adjustment at some point.
One thing that may become an issue for lenders next year is that from December, HMRC will become a preferential creditor during insolvency – and so that means lenders may well impose more rigorous terms on loans and debt gearing as their security is likely to be adversely impacted.
IE; Interesting times ahead, thank you.