// FEATURE // structure . The operation plan , marketing plan and sales strategy will need to be explained and a SWOT analysis provided .

Details of the current and projected finances are also essential to show that the loan repayments can be met .

Determining the commercial asset value – If lenders see a business as high risk , they will request security against the company director ’ s assets . These can include commercial premises , machinery and inventory .

The company director will need to provide a detailed estimate , and the lender will later arrange for a proper valuation .

Agreeing a personal guarantee – Finally , the personal assets of the company director can also be used as security for a business loan or financial agreement . This is useful if the business is getting established but is high risk .

A personal guarantee entitles the lender to seize the personal assets of the guarantor , such as their home , if the business fails to make repayments . It is a pretty serious commitment , but not one to shy away from .

They are a fact of life , and any business owner or director looking to invest will likely need to sign a personal guarantee at one point or another .

Mitigating the risks of a personal guarantee

Personal Guarantee Insurance ( PGI ) is certainly one way of mitigating the risks associated with personal guarantees . It ensures that if the business fails , 80 % of the loan is covered by the insurance , protecting the business owner ’ s home , savings and other personal assets . Importantly , PGI offers mentoring and support at the point of debt settlement , alleviating significant stress for the business owner during challenging times .

Sharing the guarantee among a group of directors can be a sensible approach . It ’ s also worth negotiating with the lender for a time limit on the guarantee or a cap on the amount guaranteed . However , one downside

to this strategy is that rising interest rates will increase the overall cost of the debt .

Another strategy is to request that the lender accept a guarantee for only part of the loan rather than the entire amount , with company assets , such as machinery or tools , used as collateral . If the lender agrees , the company ’ s assets would be used to settle the debt first , before the personal guarantee is enforced . Above all , seeking independent , expert advice from a solicitor or accountant when faced with a personal guarantee request is a must .

Is it worth taking out a personal guarantee ?

The short answer is usually yes . It ’ s almost impossible to take out a loan , or source critical business funding , without a personal guarantee . The demands placed on company directors for personal guarantees look here to stay . Fundamentally personal guarantees are enablers , and when the risk is mitigated , personal guarantee backed loans can provide access to essential funding which SMEs may otherwise struggle to obtain . �

THEY ARE A FACT OF LIFE , AND ANY BUSINESS OWNER OR DIRECTOR LOOKING TO INVEST WILL LIKELY NEED TO SIGN A PERSONAL GUARANTEE AT ONE POINT OR ANOTHER .

Intelligent SME . tech

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