How can you limit a Directors/Personal Guarantee?

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