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Protecting Personal Guarantees During Rising Insolvency & Interest Rates

Posted by Todd Davison on Nov 23, 2022 1:15:00 PM

With the country facing the highest rise in inflation we’ve seen for 40 years, measures have been taken by the Monetary Policy Committee (MPC) to stabilise the UK economy. This comes in the form of repeatedly increasing interest rates. 


This is an extremely challenging time for businesses, especially those with loans. This development has potential to cause a significant rise in insolvency rates. 


In this article, our experts discuss increasing interest rates and how the current economic uncertainty can affect businesses, as well as why this is such an important time to secure Personal Guarantee Insurance (PGI). 



Why has the MPC increased interest rates? 


On the 3rd of November, the Bank of England declared that it had raised its benchmark interest rate from 2.5% to 3%.


While the interest rate has increased eight consecutive times since December 2021, this is the most significant single increase we’ve experienced since 1989. 


This action was taken in an attempt to stabilise rising inflation, with the hope of keeping it at 2%. However, with the cost of living crisis, prices have risen to around 5 times that level. 


In layman’s terms, interest rates are increased to deter people from borrowing money, as high rates make repayments too expensive, and therefore encourages people to save rather than spend. Analysts have predicted that interest rates could be increased again to 4.75% in 2023. 



How does the interest rate increase affect businesses? 


The Bank of England rates affect the amount charged for financial support such as business loans. The increased rate means that businesses have to pay a significantly larger amount for borrowing.


Businesses, especially SMEs often rely on external financial support for growth and investment, and without access to these lines of support, they will be unable to build the necessary capital to survive. 



Post-pandemic support


This current development in the economy is taking place in the wake of the COVID-19 pandemic, with some businesses still struggling to stabilise and preserve cash flow. The government have provided substantial financial support for business in the form of CBILS and RLS facilities, which are still available, but it is becoming increasingly expensive to make repayments. 


This often leads to businesses being unable to make the repayments on their loans, as they haven’t been able to generate enough turnover. The increasingly common consequence of this is insolvency. 



How can you protect your personal guarantee from interest increases? 


The latest data shows that insolvency rates have increased by 27% since before the pandemic. If you’ve used personal assets to secure a loan for your business, then you may be at significant risk.


One way to ensure the safety of your personal assets is to insure them, allowing you to shift all of your focus onto what matters: making sure your business survives during this unpredictable and challenging time. 


Personal Guarantee Insurance (PGI) is an effective policy designed to protect your personal assets should the worse happen.


PGI can applied to new or existing bank loans, meaning that there’s no reason why you can’t take action to protect yourself today.  



Purbeck Personal Guarantee Insurance 


At a time of such economic uncertainty, it is an incredibly shrewd move to insure your personal guarantee. 


Purbeck are the leading provider of PGI in the UK, with our policies covering up to 80% of the value of your guarantee. This ensures that you can protect your business' future without having to worry about your personal risk – rest easy knowing your assets are safe!


To find out how PGI can give you peace of mind, get in touch with our team of PGI experts. 

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