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How to Protect Yourself and Your Business When Taking Out a Loan

Posted by Todd Davison on May 3, 2022 1:40:00 PM

We all know that in order to make money, you need to spend money, which is why many SME directors choose to take out loans to help their businesses grow, or when starting on a new venture.

However, taking out a loan without a complete understanding of policies, risk and eligibility can be a gamble. Our experts have collected everything you need to know before you take out a loan, helping you to stay protected and make the right decision.


Why do people take out business loans?

Every business is unique and there are a multitude of reasons why you might feel that yours needs extra funding.

Whether you are at the beginning of your business journey, or you have decided that now is the right time to invest in your growth, a business loan may be the answer. You could use a business loan to fund inventory or equipment purchase, staff training, expansion and growth, and much more.


Which type of loan is best for a business?

When starting, its worth being aware of the various types of loans available and decide which would better suit your business. When it comes to personal or business loans, there are pros and cons to both.

Personal loans have a certain level of flexibility, with more options on what you can use as collateral. This ranges from physical property to personal savings. However, using your own personal assets is, of course, risky, as you could potentially lose them if you default on your loan.

It would be best to research which type of business loan, from secured (using collateral) to unsecured (no collateral), you are eligible for - although it’s worth noting that most loans will require some form of security.


What affects your eligibility for a business loan?

When you apply for a business loan, lenders will scour over the evidence youve provided to determine whether your business is eligible for their services or not. Some of the factors that will affect their decision are:


Credit history

Before applying for a business loan, you should consider your credit score. Credit history is important because it reflects your approach to money. Lenders may vary, but most will only approve your loan if you have a decent credit score of between 50-100.

If your business has more than one company director, their credit scores may be checked as well.

Similarly, if you already have outstanding debt from previous loans, lenders may be apprehensive to assign further debt.



This depends on how many people you are in partnership with in your company. If you have multiple partners, you may need them to act as co-signers, who are also liable for the loan.


Business plan

The majority of lenders will want to see your business strategy. They are more likely to offer support to a business with a clear idea of its profits and overheads - if you have a promising plan, they know you are less likely to default on the loan.


Collateral or personal guarantee

Before you apply for a business loan you might want to consider what personal assets you could use as collateral. Whether this is a physical site or item of value, such as a property, a piece of land, vehicles, or personal savings.



What to be aware of when taking out a business loan

It would be wise to make yourself familiar with the terms of your loan to avoid any nasty surprises further down the line. Details you might want to look out for include:

  •                  Interest rates, whether they are fixed or variable
  •                  Repayment charges
  •                  Payment schedules
  •                  The consequences of defaulting on the loan


What is personal guarantee insurance?

Personal guarantee insurance (PGI) covers up to 80% of your risk, protecting you and your personal assets if the business is unable to make re-payments on the loan.

Purbeck Insurance is the UK’s only current provider of PGI, insuring personal guarantees signed in support of business loans. Our unique policies can deliver on a range of different business loans and can cover multiple guarantors.


Personal guarantee insurance from Purbeck Insurance

By far the best way to protect yourself when you secure a business loan supported by a personal guarantee is to take out personal guarantee insurance.

We have a tried and tested sales process both at initial sign-up and at renewal so that you can maintain peace of mind throughout the duration of the business loan (and personal guarantee). We’re here to help you fund and grow your business, without risking your personal assets.

At Purbeck, we are confident we can provide support for you and your business. You can find our online application page here, or for more information on personal guarantee insurance, get in touch with one of our experts.

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