Firms are being more cautious about their financial commitments after higher levels of confidence in Q2 2024, new research suggests.
The Q3 2024 Personal Guarantee Insurance Monitor from Purbeck Insurance Services shows that small businesses have cut back the amount they are borrowing from lenders.
While the number of applications for personal guarantee (PG) backed loans is up 43% on 2023, The Q3 2024 Personal Guarantee Insurance Monitor shows the average loan to small businesses of all ages fell 17.5% to £204,000 compared to the same period in 2023. Notably, there was a big fall in the value of loans to start-ups (under two years old) year on year to the lowest level recorded to date of just £94,000.
Working capital to support cashflow and to keep the business ticking along remains the number one reason for applying for a PG backed small business loan with 38% of applications for this reason. Purbeck Insurance Services said a further concern for the health of the UK economy was that the number of applications for loans to support investment in growth initiatives fell. Just 13% in Q3 2024 were for this reason from 19% in Q2 2024. It said this suggested a deepening level of caution and wariness amongst small businesses.
Most applications (41%) were for unsecured loans (still requiring a personal guarantee) while 19% of loans were secured/asset-backed lending. Reflecting the lower value of loans for which smaller businesses have applied, commercial mortgages were at their lowest level in a year along with asset finance.
Todd Davison, MD of Purbeck Insurance Services said:
“Once again, small businesses are facing big uncertainties as we head into Winter 24/25. This is undoubtedly influencing their willingness to take on debt at a level they may not be able to service. This is a sensible approach but we must not lose sight of the fact that even so, compared to 2023, the appetite for new finance is still very much in evidence as is the demand for personal guarantee insurance to make the risk of a loan less risky for the business owner who has been asked to supply that guarantee. On average business owners are seeking £170,608 of Personal Guarantee Insurance protection from £152,039 in Q3 2023. Ultimately, small businesses are the lifeblood of the economy and they need access to the funding they need to invest and grow. Right now, it appears many are simply ‘treading water’, as they await the outcome of the Budget.”
