Local builders insuring against business failure hits new high

• The number of applications from small builders for personal guarantee insurance more than doubled in 2022, up 135% on 2021
• Average personal guarantee backed business loan rose to £174,101 in Q4 2022
• Local builders are securing finance just to keep business ticking over

The number of local builders applying for personal guarantee insurance (PGI), to protect their personal assets should their business fail, hit a new high in 2022.

Purbeck Personal Guarantee Insurance, the U.K.’s first and only provider of personal guarantee insurance saw applications from local building firms up 135% in 2022 on 2021, as directors/owners took on new finance that put their personal assets at risk. Lenders will ask for a personal guarantee when there are not enough assets in the business to repay the loan if the business fails.

Underlining the increasing costs of running local building businesses, the average value of personal guarantee backed loans taken out by local builders rose to £174,101 in Q4 2022. This is up from £156,900 in Q4 2021 – an increase of over £17,000.

The main reason for local building firms taking new finance in 2022 was for working capital, to assist with the day to day running costs of the business.

Todd Davison, MD of Purbeck Personal Guarantee Insurance said: “Our findings uncover the personal risks many small builders have accepted in the past year to secure finance to keep their businesses from insolvency.

“Many builders in need of new finance not only find that there’s a poor choice of loan products, but when they are able to find the right loan, they have to take on a big chunk of risk themselves as security for the lender. This means if the firm fails, the lender could use the builder’s personal estate such as their home and savings to settle the debt. A rapidly growing number are therefore taking steps to protect their personal assets should their business become insolvent.

“Small builders are feeling the impact of inflation and economic uncertainty on all sides and we know a growing number of construction companies are in ‘critical financial distress’[i]. It therefore makes perfect sense that they are doing what they can to bring some certainty in very uncertain times. We would certainly urge any local builder that is considering new finance to fully investigate the pros and cons of signing a personal guarantee and consider insurance to mitigate the risk. Unlike other forms of insurance, a PGI policy includes free mentoring and advice if a business gets into financial distress, to help prevent failure.”

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[i] https://www.begbies-traynorgroup.com/news/business-health-statistics/red-flag-alert-report-q4-toxic-combination-of-risks-afflict-uk-businesses-as-concern-over-a-surge-in-insolvencies-grows