A Personal Guarantee is what it says on the tin; a ‘personal guarantee’.
If you run a company and it is registered as a limited company; and if it borrows money or obtains credit from a creditor, the creditor will protect itself by asking the directors to give personal guarantees. That is good business for the creditor, but the question is “Should the company director give his / her limited company a personal guarantee. In my opinion ‘No’.
If the bank or supplier wants your business, then they should be required to make a commercial decision on the company’s request for credit. A proper risk assessment should be carried out and the lender must make up its own mind about the level and amount of risk it wishes to taken on. If a lender is given the opportunity to copper fasten the risk, it stands to reason that they will take the opportunity. If your company requests credit from your bank, you should be prepared to deal with the question of ‘Personal Guarantees’ and my advice is have a properly constructed proposal to present to the bank. If the issue of ‘Personal Guarantee is raised, be sure that you know what this means for the company and more importantly, what it means for you and your family. This is no box checking exercise. This is a legally enforcable contract that makes you directly responsible for the repayment of any debt in the event the company cannot meet it’s obligations. That’s your personal finances at risk and your family’s future at risk.
There are rules which should be applied to the giving and taking of a ‘Personal Guarantee’. The two most important come down to advice:
- Get reliable independent commercial advice from an accountant
- Get reliable independent legal advice from a solicitor
You need to know and fully understand the commitment you are entering into.