The following opinion article was submitted by Keith Tully, a business insolvency expert and a partner at Realbusinessrescue.co.uk, the UK’s largest professional services consultancy. Keith provides support and advice to small and large companies alike with the benefit of over 20 years’ experience in the field.
Setting up and running a business of any size, and in any industry, is challenging enough but even more so when essential financing proves difficult or impossible to attain.
This situation has become particularly prevalent over the past decade or so since the financial crisis, after which many mainstream lenders became increasingly reluctant to offer loans to businesses which they perceive as posing even the slightest credit risk.
One consequence of this has been the rapid expansion of alternative finance markets in the UK and across Europe. This trend has seen the emergence of entirely new mechanisms for finding and securing business loans and emergency capital. Providers in these areas have quickly stepped into the void left by mainstream lenders to meet demand for business finance.
Another consequence of the reluctance among banks and other mainstream lenders to provide funding to SMEs has been that company directors have increasingly had to provide their own personal guarantees to bolster company finance applications.
Although clearly not a decision that should be taken lightly, lenders are more inclined to lend when some sort of security is provided – particularly where the applicant represents a start-up business or a company with a chequered financial history.
For directors themselves when providing guarantees, the hope is naturally that the matter will never become relevant again but that it makes an important difference in opening up access to finance that might otherwise have been denied.
This set of circumstances is now far from uncommon and, in some cases, the knock-on effect of failing a personal guarantee can lead to both corporate and personal insolvency. It’s fair to say that guarantee-related insolvency enquiries have certainly risen in recent years at Real Business Rescue with our team assisting swathes of directors who face losing personal assets due to the failure of their business and the inability to meet their finance liabilities.
In this context, insurers have begun to play a particularly significant role with personal guarantee insurance becoming a term that more and more company directors are becoming aware of.
In short, as long as there are reasons for business bosses to provide personal guarantees in relation to company loans, there will also be a demand for insurance products and services which provide potentially important protections in these scenarios. The reality is that the financial prospects and performances of SMEs can change quickly - and with little warning - and where personal guarantees have been given by company directors the consequences can be seriously damaging on both corporate and individual levels. That is unless personal guarantee insurance has been arranged and agreed upon in advance – proving to be vitally important for company directors keen to access finance and build their businesses for the future.
The preceding article was written by Keith Tully, a business insolvency expert and a partner at Realbusinessrescue.co.uk, the UK’s largest professional services consultancy. The views expressed within the article do not necessarily reflect those of Insurance Business.
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