SME borrowing jumps 63% in Q2 as firms seek working capital

Demand for personal guarantee-backed finance among UK SMEs surged during the second quarter of 2026 as businesses faced rising operating costs and ongoing cashflow uncertainty, according to new data from Purbeck Insurance Services.

The UK’s specialist provider of personal guarantee insurance reported a 63% year-on-year increase in applications for personal guarantee insurance in Q2 2026, highlighting sustained demand for borrowing. The figures also show the average loan value remained above £300,000 for the second consecutive quarter, reaching £317,000.

Purbeck said the data reflects the growing level of personal financial exposure being taken on by business owners, with every application representing a director who has personally guaranteed a business loan.

Working capital remained the dominant reason for borrowing, accounting for 36.2% of all applications during the quarter. According to Purbeck, the number of working capital loans has almost doubled over the past two years, underlining the increasing pressure on SME cashflow.

The insurer linked the trend to rising business costs, noting that 40% of trading businesses reported increasing input costs in April 2026, according to the Office for National Statistics’ Business Insights and Conditions Survey.

Despite the challenging backdrop, businesses continue to invest for the future. Finance to support growth initiatives accounted for 20% of all applications, making it the second most common reason for borrowing. Lending for asset purchases, business development and acquisitions also remained significant, with the three categories together representing nearly one in four applications.

The data also revealed a notable shift in borrowing patterns between newer and more established businesses. For the first time in more than a year, start-ups borrowed more on average than established firms, with the average start-up loan reaching £345,000.

Purbeck said the figures highlight the increased risks faced by entrepreneurs, who often lack the trading history, customer base and assets that give lenders greater confidence when assessing more mature businesses.

“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 two 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.”

Purbeck’s latest figures suggest that while many SMEs are relying on borrowing to manage immediate cashflow challenges, business owners are also continuing to pursue investment opportunities, balancing short-term financial pressures with longer-term growth ambitions.