Personal Guarantees Explained

What is a personal guarantee?

It’s simply something that a director and/or shareholder signs to give an undertaking to the bank that if the company doesn’t pay the debt, they will. Essentially, in real layman terms, you guarantee the company’s debt.

Personal guarantee can sometimes be a dirty word for some small business owners because the immediate thought is that their house is going to be taken away from them.

A personal guarantee is you saying to the bank “Look, I believe in the business, so I’m going to put my name behind it”.

Jon Maloney

Is every lender the same and what if there’s more than one director?

They’re pretty uniform across the loan providers and if there’s a number of different directors, usually with an unsecured loan, they’re joint and severally liable. So, in the case of everything going not so well, then they’ll all be liable for the debt, they won’t be liable for a proportion of it. They’re both liable for the full outstanding amount.

Do I have to let lenders know a change of circumstance if I have personally guaranteed a business loan?

You don’t have to inform a bank or a lender that you’re moving home because your personal guarantee is not secured directly against a particular property or anything like that.

A personal guarantee doesn’t restrict you from moving, you could move houses seven times in the course of a personal guarantee.

Does every form of business finance require a personal guarantee?

It’s pretty much a prerequisite for any kind of finance that you’re going to take out, be that an unsecured business loan, secured business loan, asset finance, HP, whatever you want to call it, everything will have a personal guarantee attached to it.

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