August 2022: Purbeck Personal Guarantee Insurance, the U.K.’s first and only provider of personal guarantee insurance is urging small businesses to think like mortgages switchers and consider a fixed rate loan now to support investment or to sustain a business, while rates remain low. Since March 2021, businesses have, in aggregate, repaid more finance from banks and capital markets than they have raised[i]. Company insolvencies are also returning to pre-pandemic levels after the lows recorded in the pandemic.
Todd Davison, MD of Purbeck Personal Guarantee Insurance said: “Bank risk-appetites are largely returning to what they were in 2019 but small businesses are paying back more than they are borrowing[ii]. That makes sense if you are on a floating interest rate for a loan. However, around 25% of small businesses made use of the Bounce Back Loan Scheme with a low fixed interest of 2.5%. Given the Bank Rate is forecast to peak at 1.9% during 2023, any small business considering new funding needs to act fast to protect themselves from the impact of rate rises, just like many people switching to fixed rate mortgages[iii].
“While reticence to take on more debt is understandable, many business owners wouldn’t think twice about a mortgage for a dream home. One of the major comfort factors with a business loan is that Personal Guarantee Insurance protection cuts the risk of losing everything should a business fail, making the decision to take on a loan far easier.”
Purbeck’s top tips for surviving a recession:
- Be proactive – confront potential trading difficulties head-on by assessing the impacts of a downturn/recession and what that means for the business.
- Stay close to the cashflows of the business – undertake a regular financial assessment and measure performance against budget. This can help to identify potential cashflow problems in the future and to provide vital time to counteract these challenges. Look at the gearing and interest coverage ratio for the business to see whether the business can withstand higher rates of interest by undertaking stress testing on revenue and cost bases.
- Be collaborative – speak to key stakeholders, suppliers, customers, understand the supply chain and manage expectations to work together.
- Find new opportunities – is the business reliant on one revenue stream? Could it benefit from revenue and product diversification? Often, during difficult trading periods, expenditure on advertising and marketing is reduced – this can be detrimental in the long term. Analyse the market to see if there are any new opportunities and consider what the competition is up to for fresh ideas.
- Streamline operating margins – review the cost base and expenditure to see where savings could be made. Holding cash in reserve is also favourable to help the business withstand any trading downturns. If the business is looking to invest for example in plant and machinery, leasing arrangements could be better from a cashflow perspective to help spread the acquisition costs over a number of years.