Purbeck Personal Guarantee Insurance has cautiously welcomed news of the recovery loan scheme’s (RLS) successor programme but urged the government to ensure businesses understand the risks of a personal guarantee.
Yesterday, reports emerged that a new £3bn loan scheme will launch that will offer loans of up to £2m to small- and medium-sized enterprises (SMEs), backed by a 70 per cent government guarantee.
However, unlike its predecessor schemes, it will require borrowers to offer a personal guarantee to access loans.
Todd Davison, managing director of Purbeck Personal Guarantee Insurance, cautiously welcomed the news of the scheme but called for the government to make sure SMEs know the risks about taking personal guarantees given the current challenges many businesses are facing.
“A successor to the RLS has been on the cards for some time and given the low take up of the RLS due to the strict qualifying criteria, we hoped a new scheme would be more accessible,” he said.
“It seems accessibility could come at a cost in the form of a personal guarantee requirement.
“Our fear is that business owners will commit to accepting liability for their company’s debt at a time when they are already dealing with rising energy costs, labour shortages, late payment and ongoing supply chain issues that contrive to make cashflow predictions very difficult.
“We hope that when this new scheme is formally announced, the government makes abundantly clear both the risks of signing a personal guarantee for a business loan and how to mitigate them. It’s vital business owners appreciate the personal stake they are taking in their business by signing a personal guarantee.”
Purbeck said to cut the risk of a personal guarantee, business owners should seek independent advice, come to an agreement to share the guarantee with co-directors, investigate if part or all of the loan is guaranteed, work out with the lender if a time limit or cap can be agreed and consider personal guarantee insurance.