New research has revealed the growing personal risk borne by the UK’s entrepreneurs, with one in three small and medium-sized enterprise (SME) loans now carrying a personal guarantee — meaning the business owner’s own assets, often their home, are at stake if the company defaults.
According to a study commissioned by Purbeck Insurance Services, the UK’s only provider of personal guarantee insurance, the average personal guarantee-backed loan now stands at nearly £180,000, up 16% on the previous year. Among early-stage businesses under two years old, the figure has surged 52% to £165,000.
With 5.5 million SMEs employing 16.6 million people and generating £2.8 trillion in turnover, the findings underline the need for clearer education and protection for directors signing personal guarantees. Todd Davison, Managing Director of Purbeck Insurance Services, said personal guarantees are now a structural feature of SME lending, adding that “when a loan is primarily to keep a business ticking over, the director who has given that guarantee faces heightened risk — especially as the cost of doing business continues to rise. Chancellor Rachel Reeves has a clear responsibility to protect the nation’s entrepreneurs.”
Davison added that guarantees can also hold back investment and confidence, as “in some cases, businesses opt for more expensive funding rather than sign a personal guarantee. Personal Guarantee Insurance offers peace of mind, enabling SMEs to borrow for growth without putting everything on the line.”
The Federation of Small Businesses (FSB) has warned that increasingly harsh guarantee requirements are deterring SMEs from taking on growth capital, particularly as lending conditions tighten post-pandemic. Challenger banks and non-bank lenders are more likely to require personal guarantees as standard practice, intensifying the exposure faced by small business owners.
Purbeck, which provides insurance to protect directors when a lender calls in a guarantee, reports record demand for cover. The company says this reflects a wider shift in risk tolerance, as business owners seek to safeguard personal assets while maintaining access to finance.
Purbeck has urged the government to ensure fairer, more transparent practices across SME lending. Its recommendations include plain-language disclosures from lenders, proportionate guarantee requirements, and wider awareness of protective products such as personal guarantee insurance. Davison said the principle is similar to mortgage protection: “Just as many people take out life and buildings insurance when securing a mortgage, personal guarantee insurance applies the same principle to business borrowing — protecting personal assets if the worst happens.”
As the Autumn Budget approaches, the call for balance between fiscal prudence and entrepreneurial protection is growing louder.
