With the deadlock on the UK’s exit from the EU resolved and a new year underway, its time to look ahead. But with politicians still figuring out the detail, it seems all but certain at this point, that there will be bumps in the road ahead.
For business owners, in a sense, this is nothing new. Managing risks in business is a constant and requires skillful balancing of risks and rewards. That’s why we want to focus in this article on how to mitigate risks associated with Personal Guarantees.
Access finance can unlock growth
Lending to SMEs fluctuates every year and many small businesses still expect Brexit to make it more difficult to access finance. One of the key influences in the lending flows is the appetite from business owners to seek funding. A high proportion of businesses never seek to borrow, which limits their ability to grow. Somewhat ironically, if too many SMEs ‘play it safe’, it could be counterproductive. Representing over 99% of UK businesses, SMEs provide 60% of private sector jobs and account for almost 50% of all private sector turnover. As such, when SMEs stagnate, so too does the economy.
There is good news though. For more ambitious businesses, business funding is certainly available. But as a condition of raising finance, lenders often ask directors to sign a Personal Guarantee. While four in ten SMEs don’t think that Brexit will affect them the slightest, they might still be inclined to play it ‘safe’ and use cash reserves to fund growth, rather than seek external finance and put their personal estates at risk.
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Demystifying Personal Guarantees
Personal Guarantees (PGs) are a common feature of the business finance market. Lenders see them as a sign that a director or business owner is fully ‘invested’ in their plans. The industry speak for this is ‘skin in the game’. On the other hand, many directors do not want to put their home at risk when something goes wrong in their business. While there is a risk, it is important to note that not all PGs automatically include a legal charge over your home. As with any other contract, you should seek independent legal advice before signing because terms do vary.
A very effective way to mitigate this particular risk is to consider Personal Guarantee insurance. Such cover kicks in, in the event of a PG being called in. The insurance guarantees lenders that up to 80% of their loan is repaid. The remaining 20% is much more manageable for business owners that find themselves in unexpected difficulty.
Available against a range of business loans (both secured and unsecured), Personal Guarantee insurance is very flexible. And knowing that there is cover in the event that things don’t play out can remove a great deal of anxiety. With this knowledge, directors may enter into a Personal Guarantee which opens up choice. In fact, a survey conducted by Censuswide last year revealed that 74% of SMEs would be more likely to take out a loan with a Personal Guarantee if they could insure against the risk of providing it. And through the greater choice, businesses can access funding on more competitive terms.
Key features of Personal Guarantee Insurance:
- Premiums are competitively priced and based on individual circumstances.
- Cover is available for Personal Guarantees signed to support a wide range of business finance facilities.
- Insurance policies backed by an A-Rated insurer.
How we help
Check if you are eligible for Personal Guarantee Insurance here.
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