The average start-up loan has fallen over 138 percent in the past year to just over £142k, from £339k in 2021.
Thats according to new findings by Purbeck Personal Guarantee Insurance follow a recent British Business Bank report showing external finance usage by small businesses has fallen overall across the UK.
Moreover, the number of startup loans has more than halved compared to 2019.
The trend underlines the challenge startup founders now face in accessing finance for working capital and the increasing personal risks they are being asked to take due to a greater demand from lenders for personal guarantees.
In fact, although loan values have fallen, the personal guarantee amount being demanded by lenders as security has grown.
Purbeck’s analysis shows that Personal Guarantee commitments are now on average nearly £125k up from, £85k in 2021.
To help mitigate the personal risk this poses, founders of startups are insuring on average £113k through Personal Guarantee Insurance compared to £73k in 2021.
In contrast, the number and value of property development loans have reached their highest level in 2022 based on Purbeck’s analysis. The average loan for a property development is now £2,274,321.
As a consequence, property development personal guarantees are now on average £752,080 and Property Development directors are insuring on average £350,000 through Personal Guarantee Insurance, from £150,000 in 2021.
“Startups are now being asked to offer a personal guarantee on around 87 per cent of the loan,” analysed Todd Davison, MD for Purbeck Personal Guarantee Insurance.
He explained that “this is going to be a step too far for some given the headwinds the UK is facing.”
“For comparison, over the past 5 years, the average personal guarantee backed finance amount secured by start-up founders for working capital has been £221,796 and the average personal guarantee amount over this period has been less than half this amount at close to £99,000,” Davidson continued.