A Personal Guarantee is an agreement which is drawn up to provide security for the credit a lender or a supplier extends to a borrower. The contract is drawn up by the supplier/lender, which comes with the legal implications that the borrower is accepting personal responsibility for debts which their company cannot repay to the lender/supplier.
Suppliers and lenders come in different forms, some of the most common of which would be financial institutions such as banks or other types of lenders, as well as any original manufacturer or wholesaler of some supplies or raw materials which are bought from them to re-sell as is or to use in the development of an end-user product or service.
The personal guarantee which has been agreed upon and signed is likely to be called in upon the defaulting of the company which took out the loan, if the creditor has required that company to agree to a Personal Guarantee.
If a director of a company or a business owner finds themselves in this very common situation of the modern day business environment, having PGI (Personal Guarantee Insurance) coverage might be to their benefit, but this would obviously depend on factors such as how affordable it is in addition to its availability. Something to keep in mind as a matter of importance is that PGI doesn’t always make for an appropriate option to exercise and it’s also not always available. It’s usually made available on an individual, case-by-case basis.
Personal Guarantee Insurance may not be made available to you, in which case there are some other options available. You might also not particularly want to take out PGI, but organisations that offer Personal Guarantee Insurance will usually be able to help you in the many other ways possible to mitigate your liability.
The business world is uncertain in its nature, carrying the potential to take unexpected turns at any time. This could very well result in a company suddenly being unable to honour debt repayments it was previously more than capable of fulfilling and it’s often through no fault of the owner, manager or any other figure central to the operation of the business. However, a PG invariably means that personal liability falls on the guarantor.
We might be bordering on the complexities of the financial and business worlds with PG insurance, but it often proves to be a necessary complexity. You enjoy some peace of mind of the protection that comes with knowing that at least there’s some way to limit the liability should the lender call the Personal Guarantee.
Since each company has a unique set of circumstances surrounding it, the cost of the insurance cover will vary according a credit check among other metrics used to gauge risk factors and eligibility.
PGI can be taken out by individual directors, or on behalf of the directors representing the company by the company itself (limited company or LLP). Additionally, if there’s a need for it, a single policy can include multiple guarantors.