We're now at that time of year when the weather is getting brighter and new growth is starting to appear. It’s a time for renewal, and for businesses the end of the financial year is much the same. It’s a time to reflect, review your financial obligations, and assess potential risks.
An important consideration for many business owners is the use of personal guarantees to secure funding. While personal guarantees can unlock essential capital for growth, they also come with personal financial risks, particularly if your assets have been pledged as security.
This is where personal guarantee insurance (PGI) comes in.
In this blog, our experts explore how PGI can mitigate financial risks and provide peace of mind as you enter the next quarter.
What is a personal guarantee?
A personal guarantee is a legal commitment made by a business owner or director to personally repay a loan or financial obligation if the business is unable to do so. Lenders often require personal guarantees to reduce risk, especially when dealing with small companies or start-ups that may not have substantial assets or credit history.
The risks associated with personal guarantees
While personal guarantees can be a valuable lifeline for businesses that need funding, they come with significant risks:
Personal assets
If your business cannot meet its financial obligations, your personal savings, property or other assets could be at risk.
Financial strain
In the event of financial difficulties, repaying a business debt personally can lead to long-term financial instability.
Legal action
If you are unable to repay the debt, lenders may take legal action to recover what is owed, potentially resulting in bankruptcy.
What is PGI?
Personal guarantee insurance is designed to protect business owners and directors who have signed a personal guarantee. If your business is unable to meet its financial obligations and your guarantee is called in, PGI can cover a significant portion of the outstanding liability, reducing the financial burden on you personally.
The benefits of PGI
- Protects personal assets – With PGI, your savings, home, and investments remain protected, reducing the risk to your personal finances if a guarantee is called in.
- Tailored to your needs – PGI can be tailored to suit your circumstances. You can choose the amount you want to insure and decide how many directors to include on the policy, giving you greater flexibility and security.
- Supports business growth – PGI helps companies grow with greater confidence by enabling them to secure funding without excessive personal risk.
- Shifts the financial burden – PGI transfers part of the liability from the director to the insurer through a co-insurance model. Policies can cover a range of finance types, including secured and unsecured loans, asset finance, commercial mortgages, business credit cards, and overdrafts.
- Flexible protection – Purbeck can cover up to 80% of personal guarantee liabilities, ensuring that a significant portion of the value of your pledged assets is protected.
End-of-financial-year considerations for business owners
If you’ve signed a personal guarantee to secure business funding, the end of the financial year is the perfect time to explore PGI as a way to mitigate risk and protect your financial security.
How PGI can reduce financial risk in the next financial year:
Provide financial protection – As previously mentioned, PGI ensures that a significant percentage of any outstanding debt linked to your personal guarantee is covered. The impact this level of protection can have on your business and your financial and mental well-being cannot be overstated.
Supports business growth – PGI acts as a safety net, allowing you to secure funding to act on business strategies without putting personal assets at undue risk.
Encourages proactive risk management – By identifying high-risk financial obligations now, you can put plans in place, whether through financial restructuring or taking out PGI to provide additional security.
Why choose Purbeck?
Purbeck are the leading provider of PGI in the UK. Our specialist approach offers tailored support for business owners and directors, allowing access to the funding you need to grow with confidence. Our clients benefit from:
- Comprehensive cover – PGI for loans up to £550,000, helping to protect business owners from significant financial exposure.
- Affordable protection – Insurance premiums start from as little as £50 per month, making financial security accessible to businesses of all sizes.
- High level of cover – Up to 80% protection for personal assets pledged under a personal guarantee, significantly reducing personal risk.
Don’t just take our word for it:
“I had a large personal guarantee in place for an integral piece of equipment for my business. Unfortunately, the worst happened, and I had to liquidate my company. I can honestly say that from start to finish, Nick and the team at Purbeck have been fantastic.
Throughout the whole process, they have been there to support and guide me and introduce me to the needed support services and negotiators, which has proven invaluable.”
As we move into the new financial year, don’t let personal financial risks hold you back. For more information on how PGI can work for you, contact our expert team today.
