A director’s guarantee can be deemed necessary by a lender before they will agree to lend money to your business. Lenders can be cautious when lending to start-up businesses or young businesses that may need funding to invest in staffing, stock or office premises because they don’t have a long track record of accounts to prove themselves.
Why Are Directors Guarantees Needed?
For this reason, a director guarantee can be required. This means the director becomes personally liable for any debts which are left unsettled in the event that the business is unable to repay them itself. It’s not a decision to be taken lightly – although it’s unlikely your own personal assets will be at risk, it’s always a possibility, and some lenders will use them to recover debts if it comes to it.
What Should I Be Aware of Before Signing?
As the director of a business, there’s a lot to think about – you may have already committed your time and energy to the business. There’s a good amount of information on the government website for directors of limited companies. Additionally, it’s advisable to seek specialist advice before signing any guarantee so that you fully understand the implications and possible outcomes of what that guarantee might entail. Specialists such as Parachute Law are well placed to guide you through.
It’s essential to be aware that your personal assets are at risk when you sign the guarantee – this might extend to your personal finances, property or assets. If you are married, your spouse may also need to sign.
What some may not realise is that you would still be liable for any debts even if you leave your role in the business or declare insolvency. Another thing to be aware of is that there might also be add-on costs which you would have to cover such as court costs or debt recovery agent fees.
For all these reasons, it’s very much best to be fully informed before signing and ensure you have sought appropriate professional advice.
