“I signed a Personal Guarantee to secure a loan, the lender has served me with a demand for the Company debt and I cannot pay.”
FIRST THE BAD NEWS…
You broke Rule Number One – Don’t Give Personal Guarantees!
The minute you agree to personally guarantee a business loan or a property lease, the limited liability protection rationale of a limited company (i.e. limited to the value of its share capital) becomes null and void, and irrelevant.
You are now potentially personally liable for the debt.
The process could result in bankruptcy and life-changing events which will damage your wealth, health and happiness.
WHAT IS A PERSONAL GUARANTEE?
A personal guarantee is a guarantee by an individual, to cover, backup or indemnify something done by a corporate entity or a third party. For example, a company director guarantees to pay back a debt of the company, if the company isn’t able to.
We understand that company directors and shareholders feel they have no choice but to agree to a Personal Guarantee, so Rule One sometimes has to be broken.
For example, if you have a profitable and growing business and funding will supercharge the business model, then offering a Personal Guarantee can provide benefits. It shows investors/lenders that you are more confident and willing to pay back the debt and use it for a fair, legitimate reason. This brings trust and can even be the final line between getting a loan or not.
If your Business is financially struggling a lender is unlikely to lend without a personal guarantee.
WHO’S GOING TO HAVE TO PAY?
The Lender will often take action against the company director who has the larger net worth.
It is not uncommon for two directors to have different assets and their available equity may vary considerably. It can cause significant fallouts when the lender targets just one director.
The bank/lenders strategy on debt recovery is to secure the fastest and cheapest route to recover the debt.
If you have the most assets you’re likely to be targeted first to satisfy debts. Then the next guarantor who has assets, then the next, and so on, to cover costs and interest that have accrued over time.
JOINT AND SEVERAL PERSONAL GUARANTEE
If you are a Lender (also known as The Holder), then a Joint and Several Personal Guarantee is valuable security.
It grants the Lender the legal right to pursue each joint and several guarantors for the full debt.
It is not, as many directors believe, a shared or ‘proportionate debt’, which may be equally divided between the directors once a personal guarantee demand has been made.
It can come as a huge shock to find that you are being chased for the whole debt.
WHAT YOU NEED TO DO NOW…
Talk to us for a free confidential consultation.
If you don’t take advice early, creditors will start legal proceedings.
The earlier you address the issue, the less effort and expense has been incurred chasing it. Emotions can run high by the time it comes to starting legal action. The lender might be far less willing to compromise at a later stage.
How can we help you?
- We offer a free risk audit and a statement of affairs. This will help you understand the cash requirements of the business, to see if a loan at this stage is a good idea, or if you should restructure first and then seek a loan on better terms.
- We can probably provide you with a better loan product, or even private equity/business angel funding without Personal Guarantees.
- We can offer you a Secure Personal Guarantee Insurance, if you have to sign a Personal Guarantee, which will cover up to 70% of the obligation, should the Personal Guarantee ever need to be called in.
If you’re ready to speak to someone, there are multiple ways of getting in touch with us.
You can book the free risk audit with initial consultation and advice (entirely free of charge) by clicking on the following link, book an appointment directly with Kevin Pritchard.
If you prefer to give us a ring please contact our team on 0800 0385 140.
Or if you feel more comfortable dropping us an initial email please feel free to send us one on firstname.lastname@example.org
During our call, we will discuss your situation in more depth and we can talk you through your options. We can also help with any legal advice that might be required.
We understand that this is a big step to take but it will be the first step towards reducing your stress levels and regaining business sanity.