Personal Guarantee Insurance: cap your personal risk on business loans

What is Personal Guarantee Insurance?

When a lender extends a business loan, it usually asks the owner to sign a personal guarantee. That signature means that if the business cannot repay the debt, the lender can pursue the owner personally: the home, the savings, the retirement accounts. For most business owners it is the single largest uninsured financial risk they carry.

Personal Guarantee Insurance sits between you and that risk. If the business defaults and the lender enforces the guarantee, the insurer may reimburse a covered portion of the enforced obligation, subject to underwriting, eligibility and policy terms.

PGI currently covers borrowers in Canada, including guarantees on CSBFP loans, commercial acquisition financing and other qualifying business loans. US coverage is planned. US business owners can join the list at our contact page to hear when it launches.

How does it work?

There are three stages: application, coverage and claim.

1. Application and underwriting

You apply for coverage against a specific personal guarantee. It begins with the CORE Score, a short assessment that reviews the loan details, business type, financial profile and the coverage you want. The CORE Score returns an indicative premium and an eligibility read. Full underwriting follows for approved applicants.

2. Coverage period

Once bound, the policy runs for the term of the guarantee or the coverage period you select. Your guarantee with the lender stays in full force as a separate legal obligation. The policy is a contract between you and the insurer. The lender does not need to approve or acknowledge it.

3. Claim event

A claim may be triggered by the events defined in the policy, which typically include business bankruptcy, formal loan acceleration by the lender, or a written demand for payment under the guarantee. Subject to the policy exclusions and the claims process, the insurer may reimburse a covered portion of the enforced amount.

Who needs it?

Any business owner who has signed, or is about to sign, a personal guarantee on a business loan is a candidate for coverage. The need is most acute in four situations.

CSBFP borrowers in Canada

The Canada Small Business Financing Program caps personal guarantees at 25% of the original loan amount for corporations and partnerships. For Canadian small and mid-sized borrowers this is the most important structural protection in the federal toolkit, and it is our primary live market. For a full breakdown, read the CSBFP personal guarantee page. The program overview is at ised-isde.canada.ca.

Acquisition buyers

Buyers acquiring a business, whether through search-fund style entrepreneurship or traditional M&A, usually finance the deal with a mix of bank debt and seller financing. Both often require personal guarantees. The exposure can be significant: a $1,000,000 acquisition financed at 80% can mean guarantees for up to $800,000 of personal liability.

SBA borrowers in the United States (coming soon)

The Small Business Administration requires personal guarantees on all SBA 7(a) and 504 loans from anyone who owns 20% or more of the business. There is no waiver. We are expanding to serve this need. US owners can join the list at our contact page. For the requirements, read the SBA loan personal guarantee page.

Small business owners with commercial loans

Even outside government-backed programs, most commercial lenders require personal guarantees on loans to small businesses. If your business does not hold significant unencumbered assets, the personal guarantee is how the lender manages its credit risk.

How much does it cost?

Premium is calculated from a few factors:

• The size of the personal guarantee, meaning the principal amount being covered
• The type of loan and lender, such as CSBFP, acquisition financing or conventional commercial
• The business risk profile, including industry, revenue and years in operation
• The coverage level you select, meaning the share of the guarantee to be covered
• The coverage term

The CORE Score returns a personalized, indicative premium in a couple of minutes, with no credit check for the indicative result. As a frame of reference, the premium is typically a small fraction of the exposure being covered. For most owners, the cost of being uninsured if the guarantee is ever enforced is far larger than the total premium paid.

What does it cover?

Subject to policy terms, PGI may reimburse up to 80% of the covered guarantee amount. Coverage applies when the guarantee is enforced following a qualifying trigger event.

Qualifying trigger events

• Business bankruptcy or insolvency proceedings
• Formal loan acceleration by the lender, meaning the full balance is demanded immediately
• A formal written demand for payment under the personal guarantee

What is not covered

Like all insurance, the product has exclusions. Common ones include fraud, material misrepresentation on the application, voluntary default, and events that occurred before the policy start date. The full terms, conditions and exclusions are set out in the policy wording. Contact us to request the wording that would apply to your coverage.

Is it worth it?

The answer depends on three things: the size of your exposure, the chance of a claim event, and the personal assets that would be at risk if the guarantee were enforced.

Consider an owner who borrows $750,000 and signs a personal guarantee for the full amount. If the business defaults and the lender calls the guarantee, that owner could lose personal assets up to $750,000. Coverage at 80% could mean the insurer reimburses up to $600,000 of a covered claim.

The case for coverage is strongest when:

• The guarantee is large relative to your net worth
• Your home equity and savings represent a meaningful share of the guarantee
• The business is early-stage or in a higher-risk industry
• You are acquiring a business with an uncertain track record
• People depend on your personal financial stability

The case is weaker when the guarantee is small, the business has years of steady positive cash flow, and you hold liquid assets that comfortably exceed the guarantee.

How do you get covered?

The process starts with the CORE Score.

1. 1 Complete the CORE Score. A short online assessment at app.pgicover.com. No credit check for the indicative result. You will need basic details about your loan and your business.
2. 2 Review your indicative quote. The CORE Score returns an indicative premium and an eligibility read. It is not a binding offer, but it gives you a clear sense of cost and feasibility.
3. 3 Proceed to underwriting. Approved applicants complete full underwriting, which may require additional financial documentation depending on loan size and risk.
4. 4 Bind coverage. Once underwriting is complete and you accept the terms, coverage is bound and your policy documents are issued electronically.

PGI currently covers personal guarantees on qualifying business loans in Canada, underwritten by licensed insurance partners. US coverage is planned.