When making a commercial credit application, in order to inject funds into your business, there’s every chance that you’ll be required to provide a personal guarantee. If you’ve never been through the process before you may be unaware of the implications of doing so and therefore unable to make an informed decision.
By the end of this article, you’ll understand what it means to sign a personal guarantee, why lenders require it and how you can mitigate your risk.
Most small and medium sized businesses in the UK are created because the owner wants to be their own boss rather than someone else’s employee. 67% of males agree with this sentiment compared with 71% of females. Furthermore, for over a third of SME founders (34%), it was a desire to build something from scratch that led them to create their business. In contrast, only 17% SME owners and directors set up their business because they saw a gap in the market.
This is according to a survey of 500 owners and directors of UK SMEs by Purbeck Insurance Services, the UK’s only insurance provider to offer Personal Guarantee insurance.
While money is not the main motivator, close to half (47%) of the men surveyed said that it was the opportunity to earn more money that motivated them to head their own firm. However this is slightly less important for women with 39% stating earning more money was the reason they created their business.
When asked about the best aspects of running a business, the male and female divisions become more marked. Close to half of female business owners (45%) feel it’s the flexibility to work the hours to suit their lives that is best for them, compared to 25% of men, whereas being boss is the best aspect of running a business for 38% of men compared to 28% of women.
Todd Davison, Director, Purbeck Insurance Services said: “As a founder of a small business, I know that fundamentally you must want to be the leader of a business to get through the all the difficulties and financial responsibilities that come with that role, including in some cases, signing a Personal Guarantee to secure funding for the business. We meet many business founders who have put their homes and life savings on the line to get their business started or to keep it going. Reaching a point of financial stability and growth is not always an easy path and the stakes are high when a Personal Guarantee is involved. The businesses that prove to be most resilient have a well–researched plan and target market for their service or product - they provide something people need, rather than what they want to sell.”
What were the reasons for setting up/running your own business?
I wanted to be my own boss not someone else's employee
To earn more money
I wanted to build something from scratch
Because I saw a gap in the market
I was made redundant
I wanted to leave a legacy
I chose to take over the business from family
I inherited the family business, it wasn't my choice
Source: Purbeck Insurance Services, survey of 500 business owners and directors by Censuswide, March 2019.
Purbeck Insurance is a specialist Personal Guarantee Insurance underwriter, authorised and regulated by the Financial Conduct Authority. We work alongside lenders and brokers to provide a bespoke insurance solution based on the lender’s individual requirements and risk profile. Please contact one of our specialists today to learn more on 0208 004 7250.