Personal Guarantee Insurance Hits a High, As Inflation Bites

Personal guarantee insurance (PGI), a product used by small business owners to protect against the risk of a personal guarantee being called in for a business loan, saw a steep rise in popularity in 2022 as the owners and directors of some of the U.K.’s smaller, limited businesses, took on new finance that put their personal assets at risk. Lenders will ask for a personal guarantee when there are not enough assets in the business to repay the loan if the business fails.

In December the UK Government reported insolvencies were up 32% year-on-year. Compulsory company liquidations were up sharply as well, at three times the December 2021 rate.

A recent survey of SMEs also found that business confidence is low, with about 50% of owners relauctant to invest. Postal, rail and other strikes have all hit small companies hard, as it becomes more difficult and expensive to send goods, hire and retain lower paid staff. Another recent Government survey found that millions of over 50s had effectively opted out of full time work after the pandemic lockdowns. Others have made the decision that a life on benefits can generate roughly the same income as working for minimum wage. That long term trend in particular is unlikely to change and hits small business harder, since they need minimum wage staff to grow any micro business.

All these factors make running a business high risk, especially during a time of inflation, so it makes sense to protect your personal assets as much as possible in case things go awry.

Purbeck Personal Guarantee Insurance saw applications for protection more than double, rising by 106% in Q4 2022 vs Q4 2021. Across the whole of 2022, applications for personal guarantee insurance rose 145% on 2021 underlining the personal risks many small business owners have accepted in the past year to keep their businesses from insolvency.

Todd Davison, MD of Purbeck Personal Guarantee Insurance said: “We know small businesses are facing huge cost challenges as they try to recover from the pandemic and problems with access to the finance they need to continue operating.  Our latest PGI monitor shows that where loans are being made available, the owner is needing to take on a big chunk of risk themselves and a rapidly growing number are therefore taking steps to protect their personal assets should their business fail. We must not forget, business owners are not only facing increasing costs at work, they are keeping the wolf from the door at home too, it therefore makes perfect sense that they are doing what they can to bring some certainty in very uncertain times.”