Small- and medium-sized enterprises (SMEs) are concerned that they will not be able to access loans after the furlough scheme ends in October.
According to an analysis by Purbeck Insurance Services, which provides personal guarantee insurance to SME owners, there will be a rising demand for SME loans to help pay staff wages when the government-backed furlough scheme comes to an end.
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“Lending to SMEs is going to be much more risk averse than they were prior to the pandemic,” said Todd Davison, managing director of Purbeck Insurance Services.
“It is likely that new finance will be heavily dependent on a business owner’s willingness to sign a personal guarantee – effectively putting their personal assets on the line if the business fails. After months of worry and uncertainty this is not what small businesses need.”
Davison added that he believes that access to funding will increasingly depend on the business owner providing security in the form of a personal guarantee.
“It is crucial firms seek expert advice regarding business loans from members of respected trade bodies such as NACFB or FIBA, and investigate ways to mitigate the risks such as using personal guarantee insurance.”
He added that there are a number of steps which can be taken by SME owners to ensure that they are able to continue operations after the furlough scheme ends. These include educating themselves about risks, seeking legal and/or financial support, sharing the personal guarantee with another director, and negotiating a time limit and cap on the amount covered by the personal guarantee.
Personal guarantee insurance can protect business owners against the risk that the guarantee is called up a lender and will offset any outstanding obligations called in under a personal guarantee.
SMEs have a range of funding options available to them during the pandemic and may be considering other types of facilities such as invoice financing.