Small businesses in the UK are showing signs of caution when it comes to taking on loans, according to the latest data from the Q3 2024 Personal Guarantee Insurance Monitor from Purbeck Insurance Services. Despite a 43% increase in the number of applications for personal guarantee backed loans compared to 2023, the average loan amount has decreased by 17.5% to £204k.
One significant finding is the sharp decline in the value of loans granted to start-ups, which now stands at just £94,000 – the lowest level on record. The primary reason small businesses are seeking loans is for working capital to support cash flow, with 38% of applications being made for this purpose. However, there has been a notable decrease in the number of applications for loans to support investment in growth initiatives, dropping from 19% in Q2 2024 to 13% in Q3 2024.
The majority of loan applications (41%) are for unsecured loans that still require a personal guarantee, while 19% are for secured/asset-backed lending. This trend is reflected in the decreasing number of commercial mortgages and asset finance loans being sought by small businesses.
Todd Davison, Managing Director of Purbeck Insurance Services, highlighted the uncertainties facing small businesses as we head into Winter 24/25. He emphasized the importance of small businesses having access to the funding they need to invest and grow, noting that many are currently “treading water” as they await the outcome of the upcoming Budget.
Despite the overall decrease in loan amounts, the demand for personal guarantee insurance is still strong, with business owners seeking an average of £170,608 in protection – up from £152,039 in Q3 2023. This indicates that while small businesses are being more cautious about their financial commitments, they are still looking for ways to mitigate the risks associated with taking on debt.
As the backbone of the economy, small businesses play a crucial role in driving growth and innovation. It is essential that they have access to the necessary funding to thrive, especially during times of economic uncertainty. The upcoming Budget will likely have a significant impact on the decisions of small business owners, and it remains to be seen how they will navigate the challenges and opportunities that lie ahead.
