Irish personal guarantee insurance makes its debut

Insurance on personal guarantees provided to banks in return for credit has been made available in Ireland for the first time by insurance intermediary DFI Consulting.

Personal guarantees gained greater prominence during the financial crash when borrowers found their personal and family assets exposed after running into business difficulties.

With banks frequently requesting such guarantees, many SMEs reluctant to put their personal assets on the line find themselves locked out of the lending market.

“This product will help many small business owners around the country access the credit that they need to drive their business while also ensuring that their family homes and personal assets are protected,” said DFI director Daniel Curran.

Isme chief executive Mark Fielding said personal guarantees encourage “lazy banking” which prevents lending decisions being made on sound business principles.

He accepted, however, that this type of insurance appears to be working in the UK, adding that it is a good product if it allows increased access to credit.

Approximately €48m of personal guarantee business is being written a year in the UK but DFI director Stephen Curtis said €20m per year would be considered a success in the Irish market.

The insurance would cost approx. 3% per annum, or €3,000 on a €100,000 loan.

Cover starts at 50% of the guarantee in the first year, rising incrementally by 10% per year to a maximum cover of 90% in year five.

In 2014 Red C & The Department of Finance’s SME Credit Demand Survey found personal guarantees were requested in 33% of cases but Mr Fielding claims the figure could now be twice as high.