Loan Groans Growing But Pressure Easing

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The Purbeck Personal Guarantee Insurance Monitor has shown there is a growing burden for directors and owners of those companies operating in the construction sector to take put personal loans just to keep their business afloat – but the pressure is easing.

In Q2 2025, 34% of construction sector loans were for working capital compared to 54% in Q2 2024 – so the burden is reducing but is still very high and the average outstanding loan is a whopping £194,831.

However, there is a positive sign for the sector, with new finance for investment in growth initiatives (such as taking on new people, marketing and new services) growing in Q2 2025 with 18% of loans taken for this purpose, up from 15% the previous quarter. In addition, 10% of loans were being taken for asset purchase, the highest proportion since Q1 2022.

Too risky

The analysis of personal guarantee insurance applications for business loans by Purbeck Insurance Services, reveals the growing personal risk many building and construction SME owners and directors are facing to secure funding for their business. The analysis comes as the Federation of Small Businesses highlights the impact personal guarantees are having on access to funding.

Todd Davison, the MD of Purbeck Insurance Services says: “Our latest Personal Guarantee Insurance Monitor for Q2 2025 suggests a growing level of confidence in construction SMEs.  These businesses are shopping around for better finance deals and pursuing their growth ambitions. Yet this comes at a cost with a higher level of borrowing and a higher level of personal guarantee risk, commensurate to that borrowing. 

 “Purbeck Insurance Services, along with The Federation of Small Businesses, is concerned that many small firms are put off from borrowing due to a personal guarantee demand from a lender.  Personal guarantees need to be appropriate and proportionate to the loan agreement.

 “Ultimately, however, lenders have become more risk averse so personal guarantees have become a fact of life in business borrowing. It therefore remains vital that SME owners and directors in the construction sector take steps to mitigate the risks of personal guarantee backed loans, whatever route they might take for finance – including the Growth Guarantee Scheme. Personal guarantee insurance exists to give businesses confidence to borrow but this is just one way to reduce the risk to a director’s assets.  This underlines why owners and directors should always seek advice from an accountant, solicitor or commercial finance broker before signing on the dotted line.”

Picture: When securing a new personal guarantee backed loan, it is always advisable to secure personal guarantee insurance, meaning the business owners’ and directors’ personal finances won’t be at risk in the unfortunate situation of a business failure.

www.purbeckinsurance.co.uk

Article written by Cathryn Ellis
17th July 2025

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