Personal Guarantees – should you sign one?
Loans11th February 20191 CommentsLeyton Jeffs
When looking at funding solutions, as a business owner, you might be asked to provide a personal guarantee as part of the security for the finance.
This means that you then become personally liable for the element of funding you have guaranteed if your company defaults. But is it worth doing?
Well most lenders will look for some form of personal commitment, I hear all the time “if the owner isn’t prepared to guarantee that the business is on solid footing, why should we lend our money?” and that is a very valid point. But we also know that one change, outside of our control can suddenly take a business that is performing well into liquidation so there is a balancing act here!
But before you decide to put ink-to-paper of a personal guarantee, you should know the legal basics of what you are entering, and the consequences in a worst-case scenario.
The pros and cons of giving a personal guarantee.
- Could improve your chances of getting finance
- Could increase the amount of funding a lender could provide
- Cost of funding could be reduced by providing a guarantee
- Allows the business to reach its potential that without funding it wouldn’t be able to
- A lender may provide more flexibility in a distressed situation, knowing they can rely on your support
- The risk is higher. if you provide a personal guarantee, the stakes certainly increase
- It’s a personal commitment – takes away the protected status of a limited company
- It can lead to a poor credit history if the loan is defaulted on and could even lead to personal bankruptcy
So should you be a personal guarantor on a loan?
When looking at funding, there are so many intricate details, guarantees being only one. Instead of becoming an expert at funding as well as your own business, enlist the help of a specific funding expert who can walk you through the many different solutions available, with or without guarantee, how intrusive the guarantee is, the value of guarantee, etc…
Sedulo Funding Solutions specialises in assisting business owners to understand the full range of finance available. Using our extensive panel of lenders and the decades of experience we have of sourcing funding, we can walk you through the many solutions available to you, saving you valuable time, negotiating the best rates on your behalf and ensuring you avoid the many pitfalls along the way.