October 2019
By Todd Davison, Managing Director of Purbeck Insurance Services
Extraordinary times offer unique opportunities to prove our worth to the SME market. News reports suggest that thousands of small businesses are at risk amid an ‘unprecedented’ confidence slump[i] and there has been a 40% increase in firms struggling financially since the EU Referendum.[ii]
The question for anyone working in the commercial finance sector is first, are the owners of these businesses getting access to the financial support they need; and second, do they know how to mitigate the risks associated with new funding?
Feedback from a survey we conducted reveals a very mixed picture. 43%[iii] of small business owners and directors said they have never sought business finance advice. Of those that do seek out advice, most will go to their bank. Accountants are next on the list followed by a broker and finally their solicitor.
Whatever route a small business owner chooses to arrange business finance, it is vital they are made aware not only of the risks but the real and relatively painless steps they can take to reduce those risks. This really plays to the strengths of brokers who can build a holistic proposition going beyond the loan facility.
We all know that there can be unintended consequences for the owner or owners when they sign a personal guarantee to secure access to funding. The ramifications can be huge if things go wrong – loss of home, car, life-savings. And that’s just the start. Yet, based on our findings, many small business owners are signing personal guarantees in blissful ignorance of the personal risks.
Personal Guarantee Insurance is just one example of how small business owners cut the risk of a personal guarantee backed loan. For some business owners, signing a personal guarantee is a step too far, yet in our study, 74% said they would you be more likely to sign a personal guarantee if you could insure against the risk of providing it.
Unlike other types of insurance, we believe in prevention rather than cure which means that when a business owner takes out Personal Guarantee Insurance, they get access to an expert team of mentors including finance brokers where appropriate, to help them through any financial stresses. We want their business to succeed as much as they do.
Therefore as well as enabling brokers to introduce PGI into a lending proposition, we’re also providing links to policyholders needing support. It is this type of approach that demonstrates the real value of working collaboratively in this sector.
The good news is that while the impact of 3 years of Brexit uncertainty is being felt, the commercial finance market has not stood still.There are now greater opportunities to access finance, lenders have shown their support of the new SME Finance Charter[iv] and new measures are being put in place to help mitigate the risks. For example, from April 2019, SMEs with fewer than 50 employees, and Personal Guarantors (along with Charities and certain Trusts), can now complain to the Financial Ombudsman Service, if they feel they have been unfairly treated by their lender. In addition, new FCA rules for P2P lending platforms[v], should afford greater protection to SMEs.
Right now, access to finance could be a matter of survival for many small business owners. It is therefore incumbent on all of us working in this sector to work together to provide access to products and services that both meet their needs and reduce their personal risks.
[i] Thousands of small businesses at risk amid 'unprecedented' confidence slump since Brexit vote
[iii] Survey of 500 Small business owners and directors conducted by Censuswide for Purbeck Insurance Services