September 2021: Following news of an 18 month high in registered company insolvencies[i], we are urging the owners of small and medium sized businesses to ensure their personal assets, such as their home, bank account and savings, are protected if their business should become insolvent.
We estimate that over 420,000 small business owners in the UK were acting as personal guarantors for business loans prior to the pandemic. By providing a personal guarantee in support of a business loan, the director is providing the lender with recourse to his/her personal estate which, in effect, lifts the veil of incorporation afforded through a Limited Company or Limited Liability Partnership.
Furthermore, we have calculated that £2.1bn in CBIL loans were taken by business owners and directors which had personal guarantees attached[ii].
Todd Davison, our MD, says “Many small and medium sized businesses are now facing a very bumpy ride as pandemic support measures, such as VAT deferrals and the commercial rent moratorium, ease back. For those business owners who have taken the serious step of putting their personal assets such as their home and life savings on the line to secure a business loan, this will be a very worrying time. Personal Guarantee Insurance mitigates the risk, providing peace of mind that if the loan is called in, up to 80% will be settled by the cover.
“Part and parcel of cover is the provision of mentoring and support to businesses who do get into financial difficulty. As part of the cover we also provide a demand mitigation response service up to the value of £10,000 within our policy cover. This has been a key draw for policy holders – it’s not just about covering the risk of a Personal Guarantee, we are helping small business owners through a pretty turbulent and stressful time in their lives. This service offers expert support and advice at the point the debt needs to be settled, acting as a point of liaison for the lender.
“Knowing that as a business you won’t get left high and dry when things start getting tough is really valued by our policyholders and of course we have a vested interest in ensuring the success of our clients’ business.
“With the Government support schemes starting to ease off, and access to finance increasingly likely to depend on signing a Personal Guarantee, Personal Guarantee Insurance will step in to help protect the UK’s SME owners and directors – in more ways than might be expected from an insurance product.”
[ii] FOI Request in April 2021 for breakdown of CBILS loans secured over £250,000 where a personal guarantee was required by the lender, up to 31st March 2021