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?
- 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
- 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.
- Limit the terms of the Guarantee – don’t let the guarantee be unlimited or unconditional
- Agree terms for relief – for example when a % of the debt has been repaid
- Decrease the Guarantee if the business achieves specific goals, for example a target net worth
- Set rules for when the Guarantee can be called on for example when a set number of repayments are missed
- Avoid ‘Joint ans Several’ Guarantees as not all business owners may have equal shares
- Avoid co-signing by Spouses
- Avoid using your main residence in the guarantee
- 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?
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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
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It can provide the incentive needed to grow the company by borrowing essential monies
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This type of insurance is flexible, and can be increased if necessary as your business grows
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Personal Guarantee Insurance provides peace of mind to directors that the full value of their personal asset is not at risk
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Start-up companies have access to funding that they might not otherwise be comfortable taking on
steve@bicknells.net
