Manufacturers may face barriers to new finance

Purbeck Insurance Services, provider of the UK’s only Personal Guarantee Insurance solution is warning the owners and directors of specialist and small-scale manufacturing businesses that they may find their finance options severely limited unless they put their personal assets such as their home and savings, on the line. 

Manufacturers looking for fresh finance to support business recovery and growth must prepare for a tougher lending environment as an outcome of the pandemic. Purbeck Insurance Services, provider of the UK’s only Personal Guarantee Insurance solution is warning the owners and directors of specialist and small-scale manufacturing businesses that they may find their finance options severely limited unless they put their personal assets such as their home and savings, on the line. 

Purbeck has a growing customer base of manufacturers across the UK, insuring Personal Guarantees worth £9.2 million and funding to the tune of £20 million.  28% of policyholders in manufacturing have been through an insolvency procedure previously.

Todd Davison, MD of Purbeck Insurance Services said: “Reports suggest that manufacturing is leading hope of a V shaped recovery. While many firms have taken advantage of the Government’s support measures, as these scale back in the latter part of the year and cash reserves run dry, manufacturers may start looking for new finance.  However it is likely that lenders will become increasingly risk averse, so finance may become more costly and more dependent on the owners or directors signing a Personal Guarantee.  It is therefore crucial firms seek expert advice from members of the respected trade bodies such as NACFB or FIBA and investigate ways to mitigate the risks such as using Personal Guarantee Insurance.

“Personal Guarantee Insurance has enabled many manufacturers to access finance with improved confidence and in the knowledge that if their finances do become stressed, they can call upon our support and mentoring services.   In addition to insurance, there are a range of measures business owners should consider to cut the personal risk they are taking.  Signing a Personal Guarantee is never a decision to be taken lightly but as long as you mitigate the risks it should not be an insurmountable barrier to securing new finance.”

Tips to Mitigate the Risks of Personal Guarantees
 

1. + Educate yourself about the risks, ask whether you can afford to take them and always seek legal and/or personal finance support – your accountant, solicitor or a finance broker are good sources of advice.

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2. + Seek absolute clarity on where your responsibilities for the Guarantee begin and end – for example is the Guarantee loan specific or does it cover all future loans that the lender may provide?
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4. + Negotiate a time limit for the Guarantee and a cap on the amount, but do remember interest and costs added to the debt can soon mount up.
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6. + If you’ve signed a Personal Guarantee for another business loan previously don’t forget that they are cumulative so you could be doubling the risk to your personal assets.
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8. + Ask that the lender seeks settlement from company’s assets before enforcing the Guarantee.
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10. + Confirm all points of agreement intention and expectation in writing with the lender.  This could be crucial if there comes a point when you’re trying to negotiate out of a personal Guarantee.
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12. + Consider Personal Guarantee insurance.  This relatively new type of insurance offers protection against the risk that the Guarantee is called by a lender and will offset any outstanding obligations called in under a Personal Guarantee. The level of cover is based on a fixed percentage of the Personal Guarantee the company director wishes to insure and this is dependent on whether the corresponding finance facility is secured or unsecured.
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