Personal Guarantee Insurance protects business owners who have signed personal guarantees for their company’s debts. If your business defaults on a loan or faces bankruptcy, this insurance can cover the financial obligations tied to those guarantees.
Most business owners don’t spend long thinking about the personal guarantee they’re signing. They’re focused on getting the funding in place, buying new equipment, supporting cash flow or securing the finance the business needs to move forward. The guarantee is often just another document in a much bigger process, and only later do many directors realise they’ve put their own personal assets on the line.
It’s not unusual, it’s simply how commercial finance works.
Personal guarantee insurance doesn’t remove the guarantee you’ve signed, but it can reduce the financial impact if the business is unable to repay the borrowing and the lender calls on the guarantee.
If you’ve already read our blog, Personal Guarantees: The Hidden Handbrake on Business Growth, you’ll understand the risks. This page explains how you can protect yourself against them.
Personal guarantee insurance is designed to protect directors who have personally guaranteed business borrowing. If the business fails to repay the finance and the lender formally calls the personal guarantee, the insurance policy pays an agreed percentage of the liability, helping reduce the amount you may have to find personally.
Most policies don’t insure the entire guarantee. Instead, cover is usually arranged for between 70% and 80% of the total liability, although some insurers will offer higher levels of protection depending on the circumstances.
The cost of the policy depends on several factors, including the size of the guarantee, the financial strength of the business, the type of finance you’ve taken and the level of cover you choose. Larger guarantees naturally attract higher premiums, while stronger businesses often benefit from more competitive pricing.
It’s important to understand that the insurance doesn’t pay out simply because the business is experiencing financial difficulties. The lender must first formally call the personal guarantee, meaning they have exhausted the normal recovery process and are seeking repayment from you personally. Once that point has been reached and the policy conditions have been met, a claim can be made.
If you’ve signed a personal guarantee, it’s worth considering. Personal guarantees are extremely common across commercial finance and many directors don’t realise quite how often they’re being used until they look back at the facilities they’ve already taken out.
They frequently support:
For many business owners, the guarantee becomes part of doing business. Personal guarantee insurance simply helps reduce the personal risk that comes with it.
Not all personal guarantee insurance policies work in the same way. The level of cover, the exclusions, the claims process and the premium can all vary between providers. Choosing the cheapest policy doesn’t always provide the protection you think you’re buying. As an independent commercial finance broker, we compare policies across the market and explain the differences in plain English, helping you understand exactly what is and isn’t covered before you commit.
It’s the same approach we take with every finance product – we start with your circumstances, not the policy.
1. Understand your exposure
We review the finance you’ve arranged, the guarantees you’ve signed and the level of personal risk you’re carrying.
2. Compare the market
We assess policies from a range of insurers, comparing cover levels, exclusions and pricing.
3. Recommend the right protection
We’ll explain your options clearly, so you can decide how much protection is appropriate for your circumstances.
4. Ongoing support
Personal guarantee insurance is often arranged alongside the finance facility itself, but it can also be taken out after the guarantee has already been signed. If your borrowing changes in the future, we’ll review whether your protection still reflects your exposure.
Financial Security
Personal Guarantee Insurance provides a safety net for business owners, protecting personal assets and ensuring that you won’t face crippling financial burdens alone.
Risk Management
With this insurance, business owners can take calculated risks knowing they’re covered in case of unforeseen circumstances.
Credit Improvement
Having insurance can enhance your business creditworthiness, potentially leading to better lending terms and opportunities.
Business Growth Support
This insurance enables you to pursue growth opportunities and new ventures with more confidence, knowing that you are safeguarded against potential failures.
Investing in Personal Guarantee Insurance can be a prudent decision for business owners looking to safeguard their personal assets while navigating the challenges of entrepreneurship. It’s essential to evaluate your specific needs, read policy details carefully, and consult with a financial advisor to determine if this insurance is the right choice for you.
Do you have questions or need personalised assistance? Contact us today – we’re here to help!
Yes. Many directors arrange cover after the finance has completed. Provided the business still meets the insurer's acceptance criteria, retrospective cover is often available.
Sometimes, but most policies insure between 70% and 80% of the liability. The right level of cover depends on your appetite for risk and the options available.
You should continue working with your lender as normal. The policy doesn't pay out simply because the business is under pressure. A claim can only be made once the lender has formally called the personal guarantee and the policy conditions have been satisfied.
No. The insurance is arranged for your protection and does not normally require the lender's involvement or approval.
