Business owners can be put under substantial pressure to give personal guarantees to get their new business up

Business owners can be put under substantial pressure to give personal guarantees to get their new business up

Running or to secure crucial funding for an already established business.

In many cases, lenders, landlords and suppliers will only agree to do business if the company’s obligations are supported by a personal guarantee from one or more of the individuals who own it. But, however tempting it may be to be optimistic about the business’s future prospects, thousands of businesses go under each year. Therefore, business owners should never assume that defaulting on a loan or insolvency are beyond the realm of possibility.

Read on to learn more about personal guarantee agreements, including the consequences should you default on one.

Personal Guarantee by Directors

Put simply, a personal guarantee places the director’s personal assets at risk should the borrower default quick payday loan. In this scenario, some or all his or her personal assets, including the family home can be sold or liquidated to repay the loan. Therefore, personal guarantees shouldn’t be given lightly or without a full understanding of the implications should the business go belly up.

Why do Banks Require Them?

There are a number of scenarios where a lender may ask a director to guarantee a loan or financial arrangement in case the amounts being borrowed can’t be settled by the business.

They require this simply to give themselves additional security when lending out money.

These are some of the most common cases:

  • business loans
  • mortgages
  • invoice finance agreements
  • asset leasing arrangements
  • trade supply
  • property leases

What Does it Mean for the Personal Guarantee to be Unlimited?

A unlimited personal guarantee means the guarantor is responsible for 100% of the debt in case of payment default.

This is opposed to a limited guarantee which may be capped at say 40%.

The Effect of a Personal Guarantee During Insolvency

By giving a personal guarantee, the director promises that the company will stand by its obligations to repay a loan or pay rent and that he or she will do so if the company is unable to do so. Continue reading “Business owners can be put under substantial pressure to give personal guarantees to get their new business up”