The start of a new fiscal year presents the perfect opportunity to reassess your business’s financial position and plan ahead to ensure future success.
No matter your plans for business growth, whether you’re increasing your inventory or expanding into larger premises, you’ll need to make a significant investment.
For many businesses, securing funding through a business loan is the key to their development, but they’re not always possible to access. Businesses of all sizes and sectors can struggle to secure funding for various reasons.
One way to acquire this crucial funding is through a Personal Guarantee. However, this does not come without risk, especially for business owners and directors, and it’s important to be prepared.
In this blog, we explore how Personal Guarantee Insurance can allow you to invest in your business growth in the new fiscal year without risking your personal assets.
What is Personal Guarantee Insurance?
Personal Guarantee Insurance (PGI) is a unique policy that provides a safety net for directors and business owners who have used a personal guarantee to secure business finances. The policy can cover new or existing personal guarantees, covering up to 80% of the value of the assets used to secure the loan.
The role of directors in company health
The role of a director is to act in the company’s best interest, steering it towards success, both strategically and financially. Their responsibilities extend far beyond the meeting room when it comes to securing funding. By signing a Personal Guarantee to secure a business loan, they tie their financial stability to the company’s performance.
What are the risks of a Personal Guarantee?
No one wants to sit and dwell on worst-scenarios, but it's important for businesses to be prepared for them. Right now businesses across the UK are experiencing financial challenges due to the instability of the economy in recent years, with a 10% increase in insolvencies forecast for 2024.
While Personal Guarantees can be an effective way to access finance for business growth, especially for fledgling enterprises that struggle to secure funding, they can also pose a significant risk to directors and business owners.
Personal Guarantees mean that if the business cannot pay its debts, the individuals who signed the Personal Guarantees become responsible for the owed amount. This puts personal assets, such as savings, property, and possessions, at risk.
For example, if the business defaults on its loan, the Personal Guarantee signer could lose not only the business but also their family home, which they had put up as collateral.
What are the advantages of Personal Guarantee Insurance for company directors?
The most significant advantage of PGI is the peace of mind it offers to directors and business owners.
With PGI in place, investing in business growth becomes less of a gamble. You can pursue business opportunities and external funding with confidence, knowing that your personal assets are protected from the potential fallout of business setbacks.
In addition, banks are more willing to negotiate better terms for business loans when secured with a Personal Guarantee. Lenders will be more inclined to offer favourable interest rates and higher borrowing limits when they see that personal assets are on the line. This means that by utilising PGI, directors can secure larger loans while mitigating the risk to their personal assets.
How PGI from Purbeck supports business directors
A great example of how PGI can help protect directors from the unpredictability of business is the support Purbeck provided for a London-based tooling supplier in the automotive industry.
The company went through a restructuring process to improve its business model and submitted a bid for a large contract worth over £100,000 with one of its significant customers, expecting to win it.
However, the bid was unsuccessful, and the company became insolvent overnight. Insolvency practitioners were appointed to recover the company's assets, return them to creditors, and safeguard the interests of stakeholders.
Our support team assisted the director during this challenging situation. After insuring Personal Guarantees for secured loans up to £72,000, the final settlement was agreed at £32,750. The policy protected the director, and a substantial claim of £22,100 was successfully paid.
This perfectly highlights how quickly things can go wrong in business, and the importance of having measures in place to protect yourself.
Invest in your business with confidence with Personal Guarantee Insurance from Purbeck
Planning for the success and growth of your business in 2024 does not mean you have to take on the potential risks of a Personal Guarantee.
With PGI policies from Purbeck, you can invest in your business in the new fiscal year and rest assured that your personal assets are protected.
To learn more about how to secure PGI for a new or existing Personal Guarantee, don’t hesitate to get in touch with a member of our team today.
