Purbeck Insurance Services says applications for personal guarantee backed finance rose 63% year on year in the second quarter of 2026, as small businesses turned to borrowing amid rising costs and cashflow pressure.
The company, which provides personal guarantee insurance for SME owners and directors, said the average loan value exceeded £300,000 for the second consecutive quarter. Its Q2 data showed an average loan value of £317,000.
Working capital remained the largest reason for borrowing, accounting for 36.2% of all applications. Purbeck said working capital loans have almost doubled in two years, pointing to continued pressure on day-to-day funding as companies manage input costs, delayed income, and uncertainty around trading conditions.
The data also showed that start-ups are borrowing more on average than established businesses for the first time in a year. The average start-up loan backed by a personal guarantee reached £345,000 in the quarter.
Purbeck said growth-focused borrowing accounted for 20% of applications, making it the second most common reason for seeking finance. Asset purchase, development, and acquisition together accounted for nearly one in four applications.
The figures suggest that SME borrowing is not being driven by a single pressure. Some companies are using finance to manage short-term cashflow. Others are still borrowing for growth, assets, acquisitions, or development, despite a more difficult operating backdrop.
The cashflow pressure is consistent with wider official data. The Office for National Statistics said 40% of trading businesses reported an increase in the prices of goods or services bought in April 2026 compared with the previous month, the highest proportion since December 2022. For businesses with 10 to 49 employees, the figure was 50%.
The ONS also found that 34% of trading businesses reported economic uncertainty as a challenge affecting turnover in early May 2026, while businesses with 10 or more employees most commonly cited labour costs as a challenge.
Todd Davison, Managing Director of Purbeck Insurance Services, said: “The near-doubling of working capital applications over two years confirms many business owners are borrowing to survive rather than to grow. That pressure is compounded by a policy environment that has given SMEs little certainty — a change of Prime Minister, and now the prospect of significant structural change. Whatever the merits, the practical effect for a business owner trying to plan ahead is uncertainty, and uncertainty is the enemy of confident investment.
“What concerns me most in this quarter’s data is what’s happening at the start-up end of the market. For the first time in a year, new businesses (under 2 years old) are taking on higher average loans than established ones. These are directors putting their homes on the line before they’ve had a chance to build a track record, a customer base, or any meaningful financial cushion. That is a significant personal risk to carry at the earliest and most vulnerable stage of building a business.
“With the average loan value remaining above £300,000, the personal financial risk carried by small business owners when providing a personal guarantee to a lender should not be underestimated.”
Personal guarantees are commonly used by lenders when lending to smaller companies, especially where there is limited trading history, thin asset backing, or greater uncertainty over repayment. A director who signs a guarantee agrees to repay business debt personally if the company cannot meet its obligations, meaning personal assets can be exposed.
Purbeck says personal guarantee insurance is designed to protect owners and directors who have signed such guarantees, with cover of up to 80% of the loan amount. The product does not remove the underlying borrowing risk, but it can reduce the personal exposure faced by the director if the company later becomes insolvent.
The rise in working capital borrowing adds to a wider small business finance picture. As late payment reforms sharpen supplier rights, policymakers are also trying to reduce the cashflow drag caused by delayed settlement of invoices. Borrowing demand, late payment, and rising input costs are closely connected because shortfalls in one part of the cash cycle can quickly become personal risk for directors.
Start-up borrowing is particularly sensitive. New companies often lack the trading record, recurring revenues, customer base, and balance sheet strength that lenders use to assess risk. If borrowing is backed by a personal guarantee, the founder’s household finances can become tied to the early survival of the business.
That exposure can affect entrepreneurial risk-taking. Access to finance is essential for start-ups that need equipment, premises, stock, development spending, or early hiring. When the route to finance requires founders to pledge personal assets at larger average loan sizes, the personal cost of failure becomes more severe.
The growth borrowing element of Purbeck’s data is more positive. One in five applications being linked to growth suggests many businesses are still willing to invest, even while costs remain elevated. Asset purchase, development, and acquisition borrowing also point to companies seeking productivity, capacity, or strategic expansion rather than purely defensive funding.
The mix of survival and investment borrowing is typical of a strained but still active SME economy. Companies facing cost pressure may still see opportunities, but they need funding bridges to act on them. Higher borrowing values and personal guarantees shift more risk from company balance sheets to directors personally.
Finance teams, advisers, and boards of smaller companies will need to scrutinise borrowing purpose, repayment assumptions, customer concentration, cash conversion, and covenant requirements before accepting personal guarantee exposure. The distinction between debt that buys time, debt that funds productivity, and debt that supports a credible growth plan will shape how much risk directors are carrying.
Purbeck’s Q2 data shows that SME finance demand is rising, but the quality and purpose of that borrowing matter. When working capital demand almost doubles in two years and start-ups are taking larger personally backed loans than established businesses, the pressure is no longer abstract. It is sitting directly on directors’ homes, savings, and personal balance sheets.
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