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New Insurance-Type Product Eases Personal Guarantee Angst

Giving a personal guarantee is one of the most crucial, angst driven and difficult decisions facing a small business leader.

Banks and other lenders, particularly in this current economic environment, are demanding personal guarantees in many situations.

Experts report that this requirement has become more prevalent as the recession deepened and is expected to accelerate in coming months.

At the same time, most small business advisors strongly advise against giving such guarantees.

At the least, they are urging small business borrowers to limit their exposure.

This newsletter in recent months has highlighted the dangers associated with giving personal guarantees.

A new company, that spent two years researching the personal guarantee environment, is offering a way of easing the exposure inherent in personal guarantees.

Asterisk Financial Corp. offers an indemnity program for 50% or greater of a personal guarantee given for the purchase of property, plant and equipment.

According to Mark Ricciardelli, Asterisk’s CEO, the company will provide an indemnity product for small and medium business leaders who put their personal wealth behind a purchase.

“We provide 50% or greater of the guarantee liability already signed by a manager and/owner in case the company implodes after making such a purchase,” he explained. “The policy protects 50% of a guarantor’s liability after all business assets are liquidated.”

The Connecticut-based company works with small and medium business borrowers to provide an insurance policy designed to kick-in when a company fails to meet its obligations.

“We look for opportunities in the $500,000 to $5 million range,” Ricciardelli said.  “We examine the individual’s financial position in addition to the type of company when we are underwriting the product. We understand that the individual is putting his or her wealth on the line and we look at both the individual and the company,” he said.

Banks and other financial institutions value Asterisk’s approach because it can provide an additional collateral source should something happen that prevents the company from repaying the loan.

“Of course, we do not expect most of our clients to fail.  However, we do add a layer of protection that makes the borrower more credit worthy,” he said.

More details on how the program works are available at www.asteriskfinancial.com  or email Ricciardelli direct at mark.ricciardelli@asteriskfinancial.com

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