Managing Personal Guarantee Risk
Many commercial funding facilities require personal guarantees. While this can support lender confidence and improve access to funding, it also introduces personal financial exposure for directors and business owners.
Understanding how that risk is structured — and where it can be managed — is an important part of any funding discussion.
What a personal guarantee involves
A personal guarantee provides additional comfort to a lender by linking the obligation of a business facility to the individuals behind it. In practical terms, it may mean that personal assets are exposed if the business is unable to meet its obligations.
The extent of this exposure will vary depending on the structure of the facility and the terms agreed with the lender.
Where Personal Guarantee Insurance (PGI) fits
Personal Guarantee Insurance is one of several tools that may be considered to manage exposure. It is designed to provide a level of protection in the event that a guarantee is called upon, subject to policy terms and conditions.
It does not remove the guarantee itself, but may mitigate the financial impact in certain scenarios.
When it may be relevant
What should be considered
Part of a wider funding discussion
Personal guarantee exposure is rarely considered in isolation. It forms part of the wider funding structure, alongside lender selection, facility design and overall risk profile.
The objective is not simply to accept or insure risk, but to understand how it can be appropriately managed within the context of the transaction.
Discuss your funding structure
If you are considering funding where personal guarantees may be required, a structured discussion can help assess the level of exposure and the most appropriate way to manage it.
