International accounting standards suggest that business accounts should record guarantees based on the following conditions:

• Guarantees are treated as provisions if a call is likely (typically numerous similar guarantees treated as a group)

• Guarantees are treated as a contingent liability and not recorded in main accounts if a call is not likely (typically one-off guarantees)

But what about personal financial statements?

There is no set rule, however, if a director is required to provide a personal financial statement for a lender (to help support a business loan) a personal guarantee is surely a material fact that the lender would expect to be included as a potential future liability. After all they may also be asking the director to sign another guarantee.

If a personal financial statement is prepared by an individual or their wealth manager for the individual then of course a personal guarantee must be noted as a potential liability. The calling in of the guarantee may have a dramatic impact on their future planning and so must be considered in wealth management/financial planning.

What wealth managers will not always know is that personal guarantees, provided by directors to support business loans, can now be insured against being called in.

Personal Guarantee Insurance is a relatively new product which, for the first time, has been backed by a major insurer.

So when wealth managers and financial advisers are advising their company director clients, knowledge of the director’s personal guarantees must be an important element of the discovery process. 

Knowledge will create opportunity. Personal guarantee insurance provides peace of mind for a director and income opportunity for the adviser.

Would you like to find out more?