Should you avoid business loans that require personal guarantees?

Small business owners need to gauge their risk appetite carefully before they agree to funding that puts their personal assets on the line

Personal guarantees are a common requirement for small business loans, but many entrepreneurs may not fully understand the risks involved. A personal guarantee means that you’re personally liable for the loan if your business fails to repay it. This can put your personal assets at risk, including your home, car and savings.

According to a recent survey by Purbeck Insurance, 13 percent of small business owners have backed out of a loan due to the demand for a personal guarantee, and we can assume that those who do sign a personal guarantee may do so with misgivings, or believing that they have little alternative. One factor that can change attitudes is insurance to protect against the risk. In the same survey, 46 percent of respondents said they would be more likely to sign a personal guarantee if they had insurance.

Despite the risks, personal guarantees can be a valuable tool for small business owners seeking funding. By understanding the implications and considering insurance options, you can make informed decisions about your financing needs and protect your personal assets.

Insurance protection for personal guarantees

If you are not comfortable with the risks of borrowing money against a personal guarantee, there are insurance options available to protect small business owners’ assets. Personal Guarantee Insurance (PGI) can provide coverage for the full amount of the loan, protecting your personal assets in case of default.

Alternative borrowing

How you borrow to fund your business may come down to more than cost: if your risk appetite is low, you may prefer to avoid personal guarantees all together and pay a higher interest rate. At Swoop, we make it easy to compare different deals so that you can choose the one that is right for you and your business needs. 

The bottom line

Personal guarantees can be a risky proposition for small business owners. Options for business owners include insurance to protect your personal assets or seeking alternative borrowing options.

Swoop is a business funding and savings platform enabling businesses to discover the right funding solutions across loans, equity and grants, and to identify and easily make savings – all in one fell swoop.

Swoop works with over 1,000 funding providers from mainstream banks, alternative lenders, venture capital funds, angel investors and grant agencies, meaning that whatever your funding requirement, Swoop has a solution that fits.