Personal guarantees were used as security on £2.1bn of coronavirus business interruption loan scheme (CBILS) loans, new research has found.
A Freedom of Information request made by Purbeck Personal Guarantee Insurance found that the average value of a personal guarantee backed CBILS loan was £774,389.
This means that thousands of small- and medium-sized enterprise (SME) owners could face personal risk if the business is unable to make all of its repayments.
Purbeck calculated that, based on the average loan of £774,389, if the business has minimal assets the owner could need to pay back close to £154,877 to the lender.
“Knowing the full extent of the personal risk facing thousands of business owners who provided a personal guarantee for CBILS funding, it is crucial lenders and financial advisors make their customers aware of how they can protect themselves from the risks of a loan being called in – whether new or existing,” said Todd Davison, managing director of Purbeck Personal Guarantee Insurance.
“The CBILS approval rate was 42 per cent. It is expected that the approval rate for Recovery Loan Scheme (RLS) will be half of this. For many firms, access to further funding through the RLS will be off limits as they will have capped out on the maximum loan value with CBILS or they may not meet the much more stringent affordability measures.
“The additional concern is whether firms will be able to pay the loans back. With interest rates of up to 15 per cent, following the 12 month grace period, we could see thousands of firms struggling to meet the repayments.”
Purbeck found that as of 31 March 2021, when the CBILS scheme closed, 1,981 loans to the value of £1.54bn were advanced with a personal guarantee in place as security for the lender.
In addition, 356 loans to the value of £579,000 were advanced with personal property as security.