If your business is seeking investment for growth, you may be called upon as a personal guarantor if sufficient business assets are not available as security. You can insure yourself against this risk.
What is Personal Guarantee Insurance?
Businesses looking to grow will often turn to external investment for additional funds; an injection of working capital to expand their team, move into larger premises, invest in new machinery or buy additional stock.
To mitigate the risk for investors, they will seek security – primarily in the form of business assets. But, if these are insufficient, business owners and directors may need to step up as personal guarantors. This means ring-fencing personal assets to fulfil the loan obligations of your business.
It can be an extremely risky step to take, but one that is deemed essential to secure the required level or type of funding.
But to mitigate your own risk, you can protect yourself with Personal Guarantee Insurance (PGI).
When would I need PGI?
Nobody needs to take out Personal Guarantee Insurance. It is a choice you make to protect yourself in the event that your business is unable to repay the finance it has committed to.
The fact is that any form of borrowing above £5,000-£10,000 may require additional security in the form of a personal guarantee. And this could be on top of the standard asset-based security.
Should your business be unable to pay back its debt in full, you (and your personal assets) are immediately liable as a guarantor – and this is where PGI could offer you some protection.
How does PGI work?
Personal Guarantee Insurance is perhaps your one saving grace should your business default on its loan repayments.
In this situation, your personal assets may be sold to repay the money and PGI will protect you against this risk. There are some points to note:
- PGI is an annual premium, calculated on individual circumstances
- You choose how much you insure – it does not have to be the full amount of the personal guarantee you have committed to
- Cover starts from 60% of the guarantee total in year 1, rising to 70% in year 2 and then up to 80% from year 3 onwards
- More than one director within a company can be covered under one premium as part of a Joint and Several Guarantee
- PGI works well when directors have different levels of shares in the company and/or varying levels of personal wealth
- If your personal guarantee is called upon, it will involve significant costs for you
Get an instant quote today
For a PGI quote tailored to your circumstances, visit this website. They currently provide PGI for commercial loans only and are looking into the possibility of offering this on commercial leases too in the future.
Purbeck is one of our strategic partners. They are a dedicated insurance underwriter and Managing General Agent, authorised and regulated by the Financial Conduct Authority (FCA).
Pegasus Funding Resources does not offer advice or services in this area of insurance.
If, however, you’d prefer not to offer a personal guarantee against your finance, we can find the best finance solution for you. There could be a lender that doesn’t require a personal guarantee for your individual situation.