This thematic blog is written in response to recent regulatory changes, specifically the Insurance Distribution Directive ("IDD"). In our view, these changes are welcomed.
Regulation, in a number of instances, can be seen as a barrier for business, commercial decisions and, sometimes, the consumer. However, regulation is a good thing; standards are raised, best practice is promoted, and, above all else, it demonstrates credibility and a commitment.
UK Finance, the banking industry trade body, has held discussions with leading business group to discuss the provision of emergency Brexit advice to small and medium sized businesses. Part of their mission is to reassure the SME community that banks will retain the capacity to lend and not tighten the availability of credit. They also plan to outline alternative finance options available to SMEs.
At Purbeck Insurance Services, the UK’s only provider of Personal Guarantee Insurance to SMEs, we see this action as a proactive and positive step to help the SME community.
It’s often the case of David v Goliath for many small businesses when it comes to dealing with large firms and their supplier payment cycles.
Personal Guarantee Insurance – it’s a simple concept.
The insurance policy is provided in support of Personal Guarantees that are required by lenders from Company Directors to secure business finance.
For the Director, signing a Personal Guarantee lifts the veil of incorporation and enables a lender to have direct access to the Director’s personal estate should the business fail.
In January 2018, the Financial Conduct Authority ("FCA") opened a consultation on the role of the Financial Ombudsman Service (“FOS”) and whether its services should be extended to incorporate more SMEs and personal guarantors.
It seems the world of finance has developed into a “computer says no” environment, both in a personal and commercial capacity, where old school underwriting and case-by-case common sense approach has been replaced by algorithms, referencing and an increasing dependence on other fintech tools to assist a decision.
I read a few weeks ago that China is planning to introduce a citizen credit scoring system, which is almost a way of correlating a human being with the political agenda. This will affect a citizens’ ability to get promotions, credit or even to leave the country to go on holiday! Scores will improve for good behaviour, having a job in a nationalised industry, buying Chinese goods and will decrease based on bad public behaviour, purchase of foreign goods or even how many units of alcohol you consume. One beer too many and you could get refused for a mortgage or get overlooked for that promotion you wanted!
The fact of the mater is credit score is such a huge part of our ability to achieve so many things in day to day life it is vital that you know how to manage it. Ultimately this could be the difference between getting the finance you want and settling for a rate because there was simply no other option to achieve your goal.
Download our Business Finance guide for the types of funding available for your business:
You co-signed a personal guarantee for your spouses business loan and now you’re faced with losing everything you own and bankruptcy. How did you get to this point and was there any way you could have prevented it from happening?
With around half of UK start-ups failing within five years, personal guarantees may mitigate the lender’s risk, but they represent a huge risk across the SME community.
Recent research showed 55% of SME owners were unable to describe a personal guarantee and more than 60% were unaware their personal assets are at stake. Understanding these risks is not only a must for the business owner, but also for the spouse or partner who may have co-signed the guarantee.
International accounting standards suggest that business accounts should record guarantees based on the following conditions:
Guarantees are treated as provisions if a call is likely (typically numerous similar guarantees treated as a group)
Guarantees are treated as a contingent liability and not recorded in main accounts if a call is not likely (typically one-off guarantees)