8 FAQs about Personal Guarantees
Personal Guarantees should never be entered into lightly. Here we outline a few key FAQs which we hope you will find useful.
Q. What is a Personal Guarantee?
A. Personal Guarantees are generally given by company directors as security for money borrowed by the company in which they are also a shareholder. If, at a later point, the business is unable to repay the loan, the director becomes ‘personally’ liable under the guarantee.
Q. How much is it for?
A. Although it is usually capped at an agreed amount, the eventual sum owed can be significantly more by the time interest and costs have been added.
Q. What security is given against a Personal Guarantee?
A. The lender (bank or other creditor) will often ask for a charge to be held against your house, but you should explore alternative options before agreeing to this.
Q. What advice should I take before signing a Personal Guarantee?
A. You should always take independent legal advice BEFORE signing to ensure that you fully understand the implications and are comfortable with the risks.
Q. What happens if my company goes into Administration or Liquidation?
A. If you’ve provided a Personal Guarantee against company finance, you personally will have to honour the debt. However, the lender may be willing to negotiate on the timing and possibly the amount of repayment depending what assets you have.
Q. How does it work if my co-directors also provide a Personal Guarantee?
A. Even if there are co-guarantors do not assume that you will each be liable for any repayments in equal proportions. The lender will go after the director whom they believe has the most assets.
Q. What should I do if a Personal Guarantee is called in?
A. You should seek legal advice as soon as possible on the options available to you for minimising the amount you personally have to pay back.
Q. What is the worst case scenario if legal action is taken?
A. You might end up having to sell the family home in order to pay back the loan and/or enter bankruptcy.
As you can see, Personal Guarantees are quite complex. If your specific query isn’t covered here, or if you wish to expand on any of the above, please do not hesitate to contact us for a free, no obligation consultation.