As a business owner, you know that growth often requires bold steps, especially if you're launching a new venture.
Whether you're launching a start-up, navigating the complexities of a high-risk industry, or are looking to secure significant capital to scale your business, lenders may ask you for a personal guarantee. It's a common request for SMEs, but it can feel like walking a financial tightrope—your personal assets are suddenly tied to your business' success.
This is where personal guarantee insurance (PGI) comes in, offering a safety net that allows you to confidently pursue growth, knowing your finances and assets are protected if things don't go as planned.
In this blog, we explore the costs and overall benefits of personal guarantee insurance and why Purbeck is the ideal partner to help you navigate the world of PGI.
What is personal guarantee insurance?
While a personal guarantee may help you secure the funding you need to grow your business, it also exposes you to significant risk.
When you sign a personal guarantee, you pledge your personal assets, such as your home, savings and other valuables, as collateral in case your business cannot repay its debts.
PGI is a specialised type of insurance designed to protect business owners who need to provide personal guarantees to secure business financing. It provides a safety net by covering a portion of the debt in the event that your business defaults on the loan.
This means that if the worst happens and your business cannot meet its financial obligations, PGI will cover a substantial portion of repayment, reducing the amount of personal assets you might lose.
Whether you're a small business or start-up looking to secure initial funding without credit history and significant assets or an established company looking to fund expansion projects, PGI is invaluable for allowing you to confidently invest in your goals, knowing you have an extra layer of protection.
What is the cost of personal guarantee insurance?
When considering personal guarantee insurance for your business, it's essential to understand the various factors that can influence the cost of your coverage.
Just like other forms of insurance, the terms of PGI are tailored to your specific situation, meaning that the costs can vary depending on several factors.
3 key factors that influence the cost of personal guarantee insurance include:
- The amount of money being guaranteed and the loan terms
The size of the loan you're guaranteeing plays a massive part in determining your PGI premium. More significant loan amounts come with higher potential risks for insurers, which typically results in higher premiums.
The loan terms, such as the repayment period and interest rates, also reflect the cost. More extended repayment periods or less favourable terms may affect the premium because they add to the uncertainty around the loan's repayment.
- The financial situation and stability of your business
Your insurer will assess your financial health to calculate your PGI cost. A business with strong, consistent cash flow and a stable financial history is viewed as less risky, often resulting in lower premiums.
However, if your business is experiencing financial instability or has a history of fluctuating income, the cost of your PGI could be higher, reflecting the increased risk of default.
- The size of your business and industry
The overall size of your business, whether you're a small start-up or a growing mid-sized company, can also influence your PGI costs.
Smaller businesses in volatile industries, such as retail, might face higher premiums due to the risks associated with these sectors. On the other hand, businesses in more stable, low-risk industries might be offered more favourable rates.
What are the benefits of PGI for business owners?
Whether you're expanding your operation, launching a new product, or entering a new market, these decisions often require significant financial backing, and a personal guarantee is often the golden ticket for securing that essential funding—but it does raise the stakes.
PGI can be an invaluable tool to mitigate risk, offering several benefits for business owners.
Protection of personal assets
The most significant benefit of PGI is the protection it offers to personal assets. If your business hits a rough patch and struggles to repay its debts, PGI reduces the risk of losing your home, savings, and other assets.
Enhanced credibility with lenders
With PGI in place, lenders may view you as a lower-risk borrower, which could lead to more favourable terms or even open the doors to additional financing options.
Peace of mind and financial security
Running a business is stressful enough without the added worry of how your business decisions might impact your personal life. PGI offers peace of mind by ensuring that, even in a worst-case scenario, your personal financial health will remain intact.
If you have any queries about the cost of PGI and whether this policy is the right choice for you, don’t hesitate to get in touch with a member of the Purbeck team today.
Why choose Purbeck for personal guarantee insurance?
When it comes to safeguarding your personal assets and growing your business, choosing the right PGI is crucial. Purbeck is the leading PGI provider in the UK, offering customised solutions tailored to meet your specific needs. We’ve built our reputation on years of experience in the industry, helping businesses of all sizes and sectors to navigate the risks of personal guarantees.
Our unique personal guarantee insurance policies, backed by Markel International Insurance, are designed to cover 80% of the value of your personal assets, providing the confidence to secure external funding without risk.
If you have questions or want to protect your assets, contact a risk management insurance company today.
