In the wake of this year’s pandemic, applications for Personal Guarantee Insurance (PGI) have increased sharply. While the deadlines for Government backed loans such as BBLS and CBILS have been extended until the end of January 2021, it seems lenders are only providing limited access to these emergency funds, which is ultimately pushing many SMEs to source funding from traditional commercial finance avenues. These sources of finance often have tighter restrictions as well as demands for personal guarantees.
What is a Personal Guarantee?
In short, a Personal Guarantee is an individual’s promise to repay the finance provided to their company, and this promise (or guarantee) is usually made as part of the loan application process, therefore forming a legal contract.
In the event that a business is unable to repay the debt at any point, the individual that signed the guarantee (often a director or business partner) may become personally liable for that debt. Personal assets such as the individual’s family home could be at stake and if the assets don’t cover the debt, and it is possible the guarantor may be declared bankrupt.
Particularly in the current climate, a Personal Guarantee provides additional reassurance for lenders, and for small business owners, it provides access to much needed finance to support business growth.
Unfortunately, not all businesses succeed as planned, and ultimately not all debt is repaid which is where Personal Guarantee Insurance comes in.
What is Personal Guarantee Insurance (PGI)?
By signing a Personal Guarantee, the business owner (or director) is committing their personal assets, including their home, in the eventuality that business is unable to repay the finance.
However, if an individual takes out Personal Guarantee Insurance, personal assets are protected. With so many potentially unforeseen circumstances (such as a pandemic!) that could affect a business, PGI helps reduce the risk for those who have signed Personal Guarantees and provides much needed peace of mind when it comes to business finances.
PGI can be tailored to a meet a business’s individual circumstances, and the value of assets that should be insured can be specified. At Kingston Burrowes Finance, we have a recommended insurer on our panel and our team can provide further detail on the application process and/or assist with your referral.
Finally, if you would like a no obligation discussion regarding your commercial finance options, please get in touch with our specialist team who are always happy to help.