You’ve worked tirelessly to grow your business, putting in late nights and making tough decisions. So when the chance to secure extra funding arises, you seize it – even if it means signing a personal guarantee to make it happen.
Personal guarantees are a common part of business lending in the UK. They help small and medium-sized enterprises (SMEs) access the funding they need by giving lenders added security.
At the time, it feels like a necessary step to keep things moving. However, many directors find themselves asking the same question once a guarantee is signed: What are my options to get out of a personal guarantee?
Personal guarantees are legally binding commitments and while they cannot always be removed, there are steps directors can take to reduce their exposure. In this blog, we’ll look at the routes available to limit risk and protect your assets.
Understanding a personal guarantee
A personal guarantee is a legally enforceable agreement that makes a director personally liable for the debts of their business if the company cannot repay them. They are widely used by lenders because they transfer part of the financial risk away from the lender and onto the business owner.
For SME directors, this means personal assets such as property, savings, or investments could be at risk if the business defaults. This is why guarantees are often a source of concern for directors and their families.
Can you get out of a personal guarantee?
Once signed, a personal guarantee cannot usually be cancelled without the agreement of the lender. However, there are circumstances where a director may be released, such as when the loan is repaid in full or if the borrowing is refinanced with a new facility that does not require a guarantee.
While these options are possible, directors should remember that personal guarantees are designed to be binding. The key is to explore ways of reducing the associated risks.
Options available to directors
If you are concerned about your personal guarantee, there are several practical steps to consider:
- Negotiating with lenders to reduce or remove the guarantee if the business demonstrates financial stability.
- Refinancing existing debt to replace it with facilities that may not require a guarantee.
- Restructuring business finances to reduce liability and improve cash flow.
- Exploring Personal Guarantee Insurance (PGI) as a proactive safeguard against risk.
How personal guarantee insurance (PGI) helps
At Purbeck, our personal guarantee insurance provides significant protection for directors by covering up to 80% of the amount owed under a personal guarantee. For unsecured loans, the level of protection increases the longer the policy is held, offering added reassurance over time. This safeguard helps protect directors’ personal assets and enables businesses to invest in growth with peace of mind and confidence.
Why choose Purbeck?
While getting out of a personal guarantee entirely is not always possible, there are options to reduce the risk. Negotiation, refinancing, and professional advice all play a role, but PGI offers the most reliable protection for directors.
Purbeck are the UK’s leading provider of PGI, with policies designed to help directors manage the risks that come with signing a personal guarantee. As a regulated provider backed by A-rated insurer Markel International, we offer dependable cover supported by years of experience and specialist knowledge, giving directors greater peace of mind.
If you are concerned about your personal guarantee, don’t hesitate to get in touch with our team today for tailored advice.
