How can you limit a Directors/Personal Guarantee? Reply


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If you have a Business and you want too borrow money, you will probably be asked to give a Personal or Directors Guarantee.

Most Directors don’t want to give guarantees as it makes them liable rather than their business and the purpose of having a limited company was to limit their personal liability.

So it’s a common dilemma.

What can you do to reduce your risk?

  1. Would you be prepared to pay a higher rate of interest? there are are lenders who for an increased rate will agree not to ask for PG’s or DG’s
  2. If you aren’t prepared to give a guarantee you should make this clear upfront with the potential lender, it will save time and money.
  3. Limit the terms of the Guarantee – don’t let the guarantee be unlimited or unconditional
  4. Agree terms for relief – for example when a % of the debt has been repaid
  5. Decrease the Guarantee if the business achieves specific goals, for example a target net worth
  6. Set rules for when the Guarantee can be called on for example when a set number of repayments are missed
  7. Avoid ‘Joint ans Several’ Guarantees as not all business owners may have equal shares
  8. Avoid co-signing by Spouses
  9. Avoid using your main residence in the guarantee
  10. Consider whether Personal Guarantee Insurance could be obtained and used

http://www.begbies-traynorgroup.com/articles/director-advice/what-is-personal-guarantee-insurance

What are the benefits of Personal Guarantee Insurance in more detail?

  • It allows directors to balance their risk evenly, so that no one director is taking on all the uncertainty of guarantees being called upon in the future

  • It can provide the incentive needed to grow the company by borrowing essential monies

  • This type of insurance is flexible, and can be increased if necessary as your business grows

  • Personal Guarantee Insurance provides peace of mind to directors that the full value of their personal asset is not at risk

  • Start-up companies have access to funding that they might not otherwise be comfortable taking on

steve@bicknells.net

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