In many lending scenarios, a director will be asked to sign a personal guarantee when securing finance from a lender. This is seen across the board; from business loans to asset finance and property finance.
Directors are usually happy to sign these as they look to grow their business, however if the business fails, the lender can seek recoveries from the director personally. This means that in a worse case scenario – the individuals’ assets (i.e. homes and cars) could be sold to repay the loan.
A business may be subject to problems that occur outside of their control – such as unfavourable economic factors, regulatory changes, supplier failure or lack of customers.
Personal guarantee insurance therefore provides directors with cover in the event that their business become insolvent.
Insurance companies will usually cover 80% of lenders’ claims up to some maximum level of cover e.g. £400,000.
- If we use an example of a business that owes £200,000 to lenders, the insurance company will cover £160,000 and the director will have to cover the remaining £40,000
Some companies offer cover on both secured and unsecured loans, however maximum level of cover will tend to be lower on unsecured loans.
| Secured Loans | Unsecured Loans | |
| Policy term: | Annual policy | Annual policy |
| Details of cover: | Cover based on a fixed % – Year one and thereafter: 80% | Cover based on a fixed % – Year one: 60% – Year two: 70% – Year three and thereafter: 80% |
| Payment terms: | Annual or monthly payment options available | Annual or monthly payment options available |
| Maximum level of cover: | £400,000 | £300,000 |
| Access to Business Support Services: | Yes – unlimited | Yes – unlimited |
Prices for PGI can vary, depending on how large the guarantee is, what assets are being used as security, size and overall risk to the insurer. Prices can range between £750 – £10,000+ per annum.
The insurance policy can be paid for by either the director themselves or through the company and go down as a company expense.
If you are interested, please use the following link to start your application: https://csp.purbeckinsurance.co.uk/purchase/personal-details?rid=ccf7a8c8-024d-4fcc-a5d1-da548913424f
Please feel free to chat to us first on 0345 5050 888 or [email protected].
