Successful businesses will look to expand at some point in their lifecycle. This growth is likely to lead to the need for further investment in the company for which owners and directors may be required to give personal guarantees.
Personal guarantee insurance protects anyone who has made a personal guarantee against loss which arises from it.
Growing businesses seeking investment to fund more staff, new machinery, new stock or larger premises will often go to their banks or another source of lending for funds. However, if they do not have assets with which to provide security for that finance they will be considered a risk by the prospective lender. They may therefore find it difficult to secure funding unless a personal guarantee is given.
This is where Personal Guarantee Insurance (PGI) comes in. A personal guarantee is a form of security to mitigate risk, where you agree to act as guarantor for the loan obligations of your business. Your personal assets are pledged against the loan and may be sold to repay the money in the event of default.
Personal guarantees are often used by company directors to secure finance for their business that might otherwise be unavailable. They are a constant source of stress.
Invariably any form of borrowing above say £5-10,000 from a bank or other financial entity will require further security in the form of a personal guarantee from the business owners and directors. This is on top of any security that the lender may also take over the assets of your company.
Personal guarantees are the bane of many business owners’ lives and something they continually complain about.
Are you or your clients worried about the personal guarantees that you have given? Then think about personal guarantee insurance.
How it works
The guarantor is protected in the event of the company failing to pay back its lender in full. Cover starts at 60% of the amount of the guarantee in year one. The percentage increases annually up to 80% in year three and subsequent years thereafter.
You do not have to insure the full amount of the personal guarantee that you have signed. You can decide to take on some of the risk yourself and only cover the remaining amount that you feel uncomfortable with.
Why do I need PGI cover?
You don’t need PGI; it is a matter of personal choice. PGI provides financial security and protection from the unforeseen. If you have ever given personal guarantees for loans, that guarantee could one day be called upon – leading to significant costs to you. This sort of insurance comes in very useful when directors have different levels of shares in the company and personal wealth.
What does it cover?
Personal Guarantee Insurance is an annual insurance policy that provides company directors with cover in the event the lender calls on their Personal Guarantee.
How much can I cover?
Length of time
Year 3 & onwards
What is a Joint and Several Guarantee?
This is where more than one director within a company is providing a Personal Guarantee. All parties to a Joint and Several Guarantee are included under one premium.
How much does it cost?
The annual premium is calculated based on the individual circumstances and requirements of the applicant.
The level of cover is based on a fixed percentage that the applicant wishes to insure and this increases each year that the policy is in place.
Get an instant quote
Visit Purbeck Insurance Services for a Personal Guarantee Insurance quote.
As a dedicated insurance underwriter and Managing General Agent Purbeck Insurance Services is authorised and regulated by the Financial Conduct Authority (FCA).
Pegasus Funding Resources does not offer advice or services in this area of insurance.
If you’d prefer not to offer a personal guarantee at all, we’ll search the market to find the finance solution that suits you best. There may be a lender out there that doesn’t require a personal guarantee for your individual circumstances.
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