No deal Brexit & Business Loans | SMEs urged: Protect personal assets

As predictions have emerged of an upsurge in borrowing demand from SMEs[i] if a ‘no deal’ Brexit occurs, owners of small businesses are being urged to fully acquaint themselves with the terms of a personal guarantee backed loan, before signing on the dotted line.

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• Todd Davison, Director of Purbeck Personal Guarantee Insurance said: “It is widely anticipated that there will be an increase in demand for loans as SMEs look to introduce additional working capital buffers in a bid to ride out any impact on business following a “no-deal” Brexit.

  “Additional funding to aid cash flow may help to offset downturns in trade or disruption within the supply chain. But the reality is that most commercial funding will need a Personal Guarantee and this commitment should not be taken lightly. 

  “As the UK’s only provider of Personal Guarantee Insurance to SMEs, we would urge the Directors of SMEs to fully consider their options and the risks, particularly in the current uncertain economic climate.   It’s vital Directors seek independent advice, and ensure they have investigated what alternative funding may be available.  If a Personal Guarantee backed business loan is the right solution, they should ensure they’re comfortable with all the terms of the guarantee.”

  Top facts to check before signing a personal guarantee for a business loan:

  1. - How will the lender enforce the guarantee?
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  3. - Can the lender serve notice or seek payment on demand?
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  5. - What exactly constitutes a default?
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  7. - Do the terms allow for any remedy period upon default?
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  9. - How will your net personal assets be assessed prior to the giving of the guarantee, and is this is likely to change?
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  11. - Does the contract state that the lender must exhaust every other avenue before making demands on you?
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  13. - Have you considered the cost of obtaining personal guarantee insurance?
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  Todd Davison concludes: “Personal Guarantees are likely to be requested by every business lender. Directors of small businesses should be clear on the terms of the guarantee, and should have contractual clarity on all eventualities. They should be as genuinely objective as they can about the financial prospects of their business and its commercial value too. It’s essential to remember that a Personal Guarantee is not a hypothetical assurance, creditors can and will enforce them.

  “Because they significantly increase risk for the borrower, Personal Guarantees can cause enormous stress. It’s therefore advisable to get Personal Guarantee insurance against the risk that the Guarantee is called by a lender. It will offset any outstanding obligations called in under a Personal Guarantee. The level of cover is based on a fixed percentage of the Personal Guarantee the company director wishes to insure and this is dependent on whether the corresponding finance facility is secured or unsecured.”

  [i] https://www.thetimes.co.uk/edition/business/banks-step-up-brexit-advice-to-small-firms-t3zfvhqgk