Growth-focused borrowing soars for small manufacturers despite geopolitical uncertainty

The manufacturing landscape can feel like whack-a-mole as one challenge gives way to another. Yet SMEs in the sector are meeting these challenges head-on and looking to the future, with many using personal guarantee-backed finance to build their businesses and insurance to make that decision easier, explains Todd Davison, MD of Purbeck Insurance Services.

UK SMEs are refusing to give in. Economic headwinds persist, including some of the highest energy costs in Europe, rising employment costs and fresh political uncertainty following the resignation of Sir Keir Starmer, who was quickly replaced by Andy Burnham as Prime Minister. Yet many SMEs remain as tenacious as a dog with a bone.

Investing for the future

Our latest data on demand for personal guarantee-backed business loans reflects this. Faced with rising oil and gas prices and wage inflation, manufacturers continue to invest in growth. During Q2 2026, almost one in four applications for personal guarantee insurance from UK manufacturers were to support business loans for growth initiatives, the highest level ever recorded for the sector.

Indeed, analysis of the reasons manufacturing businesses sought finance reinforces the sector’s doggedness. Manufacturers are continuing to invest for the future, with just under half of all applications funding a business acquisition, asset purchase, development or investment in growth.

Against such a rocky backdrop, it is reassuring to see determined businesses confident enough to invest in growth and position themselves to capitalise on future opportunities.

Staying realistic in an uncertain environment

Despite these positive signs of growth, it is clear that some areas of UK manufacturing are struggling. Our data also reveals the other side of the story. Working capital to essentially ‘keep the lights on’ remains the biggest reason firms are borrowing, representing 37% of all loans. This highlights the ongoing pressure many businesses face in managing day-to-day cash flow.

Worryingly, one of the biggest challenges we see among SMEs is meeting HMRC tax obligations. Some firms we work with continue to carry debts dating back to the pandemic. We have five ‘golden rules’ to help firms avoid late-payment fines.

Five steps for managing tax debt

1. Engage with HMRC before the deadline, not after. HMRC is far more flexible with businesses that come forward early, and a Time to Pay arrangement agreed in advance can help avoid escalating penalties.

2. But do not let Time to Pay become the only plan; treat it as a short-term measure. If a business is stacking one arrangement on top of another, it is time to sit down with a professional adviser and look at the underlying cash flow, pricing and legacy debt.

3. Ring-fence tax as money comes in. Setting aside a provision for VAT and Corporation Tax in a separate account helps make this a routine, budgeted cost.

4. Review pandemic-era debt properly. Restructuring or consolidating legacy COVID borrowing on better terms can free up the headroom needed to meet tax bills without resorting to panic borrowing at high rates. Where refinancing requires a personal guarantee, personal guarantee insurance can help protect the director’s personal assets while allowing the business to access the funding it needs.

5. Get help early. A tax debt problem handled early is almost always manageable.

Business loan demand soars for growth and survival

Access to personal guarantee-backed finance, whether for expansion or to manage cash flow, will remain critical as manufacturers navigate the road ahead, enabling them to take advantage of growth opportunities as market conditions improve.

In the meantime, our data shows demand is already growing. Compared with Q2 2025, we saw almost double the number of Personal Guarantee Insurance applications for business loans in manufacturing.

The average personal guarantee directors are being asked to sign is also increasing, reflecting the significant funding needs of many small to medium-sized UK manufacturing businesses. The average personal guarantee value rose to £193,000 in Q2 2026 from £188,000 in Q1 2026.

Mitigating risk amid uncertainty

As loan values increase, so does the need to take the risk out of business loans. After all, by signing a personal guarantee, if a firm fails, directors stand to lose not only their livelihood but also personal assets such as their home.

Personal guarantees were once regarded as a standard condition of business borrowing, simply part of the process. Today, directors are scrutinising the risks far more closely and looking for ways to manage and mitigate their personal exposure.

Minimising the stress of a personal guarantee

As well as seeking advice from a solicitor or accountant to assess whether signing a personal guarantee is right for them, business owners can limit their exposure in other ways. These include sharing the guarantee with co-directors so the liability does not sit on one person’s shoulders. Some businesses also seek to limit the scope of the guarantee by asking whether only part of the loan can be covered, while others request that a lender pursues company assets before personal ones.

As our data shows, more directors are also considering Personal Guarantee Insurance to mitigate financial risk. This means that if a business fails, up to 80% of the outstanding liability is covered by the insurance, helping protect a director’s home, savings and other personal assets from being used to repay the debt, while providing valuable peace of mind.

With uncertain times ahead for UK manufacturing, access to finance is essential for ambitious businesses looking to invest and for those focused on keeping their heads above water. Either way, our data shows SMEs are taking financing seriously and facing ongoing challenges with determination and resilience.