What is a Personal Guarantee

How Does It Work

A Personal Guarantee is essentially an individual's commitment to repay credit extended to their business, typically made by directors or partners during the loan application process. This commitment is a legally binding agreement.

Small business proprietors frequently opt for a Personal Guarantee, demonstrating their personal stake in their business's success. If the business faces challenges in repaying the debt, the person signing the Personal Guarantee may assume personal responsibility. In such a scenario, the lender can invoke the guarantee to settle outstanding debts, targeting the guarantor's personal assets, including their home. If these assets are insufficient to cover the debt, the individual might face bankruptcy.

Given the uncertainty in business outcomes, not all debts are repaid. Consequently, the Personal Guarantee serves as an additional layer of assurance for lenders. Many small and medium-sized enterprises (SMEs) lack sufficient internal funds for self-funding growth. Utilising Personal Guarantees becomes a valuable strategy to secure essential business financing that might otherwise be challenging to obtain, potentially propelling the business forward.

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What is Personal Guarantee Insurance?

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When a business owner or director signs a Personal Guarantee, they are essentially placing their personal assets, particularly their home, at risk. If the business is unable to repay the loan, the owner and possibly their family may face repercussions.

This is where Personal Guarantee Insurance becomes valuable. It is designed to provide the assurance needed to facilitate business growth by securing essential financing while safeguarding personal assets.

Numerous unforeseen circumstances, such as market downturns, the insolvency of key customers, supplier failures, or the absence of a crucial individual within the company, can negatively impact a business and its financial standing.

Personal Guarantee Insurance can be customised for each individual, allowing them to specify the insured amount and choose the directors included in the policy. Acquiring this insurance mitigates the risk to personal assets, enabling business owners to focus on managing their business and ensuring their financial peace of mind.