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What Are Personal Guarantees?

The amount lenders will ask for and how much you will be expected to cover will depend on how your company is structured. You may be required to guarantee all of the loan, a portion of it, or provide personal guarantees alongside other owners.  

As a result, personal guarantees sit at the intersection of your personal and professional life. You will personally be responsible for covering any nonpayment of your corporate loan, even if the finance will be exclusively used by your business. Personal guarantees are especially common in cases where you raise finance for a company with a short trading history or if your lender wants more comfort due to your company’s finances, credit or financial outlook. Lenders may also ask for personal guarantees if your business has a small number of high-value clients (rather than a large client base) or if you operate in a particularly niche or specialist area that lenders believe might see fluctuating demand.

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What Is Personal Guarantee Insurance And Why Take It Out?

If you are required to provide a personal guarantee, you will be liable to pay the loan in full if your company defaults, has to cease trading or faces bankruptcy. This puts your personal wealth and capital at risk. Personal Guarantee Insurance is a way to safeguard yourself from paying the total amount you guarantee from your personal wealth if your company defaults on a loan. You can insure a portion of the personal guarantee, and if your company defaults on the loan, the lender will cover part of your guarantee. 

Personal Guarantee Insurance is also about peace of mind and protecting hard-won personal assets for yourself and your family. Many company owners and directors take out Personal Guarantee Insurance to give comfort that you will not have to pay the full guarantee personally if your company defaults on a loan.

How Much Of The Personal Guarantee Amount Will Personal Guarantee Insurance Cover?

Lenders rarely offer the total amount of your personal guarantee. They do this to ensure you remain dedicated to repaying the corporate loan to your lender at term and to mitigate their own risk. However, personal guarantees can be covered by up to 80%, although it may be less if there are circumstances which would make an insurer want to cover less of your personal guarantee. Risk, loan amount, your business’ operations and your reasons for raising finance will also influence how much an insurer will cover.

What Does Personal Guarantee Insurance Cost?

What your cover will cost will depend on how much your company is borrowing, the financial position and track record of your business, your company’s set up and the length of your loan. The more liquid your company and the better its financial outlook, the less Personal Guarantee Insurance is likely to cost. 

Significant Personal Guarantee Insurance is available for substantial corporate loans with large personal guarantees, and these will typically be more expensive than you’d pay for a smaller loan.

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