Personal Guarantees
Personal Guarantees: Protecting you, your family and your assets
Do you need an investment to grow your business but are struggling to find the right business loan?
Are you considering signing a personal guarantee but would like some advice?
Do you need help drafting or enforcing a personal guarantee?
Are you considering taking out a Personal Guarantee?
As a business owner, you are constantly looking for ways to grow and improve your company.
That often involves investing in the business.
While you are used to operating with a certain degree of risk, if securing an investment involves taking out a personal guarantee, it’s only wise to pause and consider what’s involved.
Equally, if you are on the other side of the bargain, you need to ensure the terms of the personal guarantee you require are robust enough to defend successfully if challenged.
With so much at stake, it is important to take legal advice so you fully understand your position should the guarantee need to be enforced.
Meet Lauren, our
Partner responsible for Personal Guarantees
Lauren Lancaster
Partner and Head of Property and Litigation Services
How Personal Guarantees work
A personal guarantee is a legally binding commitment to repay a loan using your personal assets, if your business can’t cover the debt.
Banks often require personal guarantees for business loans, mortgages, leases on property, and hire-purchase.
While they must be fair, they can be detailed and complex as lenders want to ensure they can recover their money if the loan goes unpaid. Given that your assets are on the line, it’s crucial you understand the full extent of what you’re agreeing to and all the risks involved.
For instance, a personal guarantee might allow the lender to claim any outstanding loan amount from you, not just the initial amount you intended to cover.
To protect yourself, professional advice is crucial.
Why would you choose to take out a personal guarantee?
There are several benefits of a personal guarantee:
● If you are a company owner, it can allow you to apply for a larger loan than your business might otherwise be eligible for.
● It also negates the need to secure the loan against business assets especially if your company has not grown sufficiently to qualify for a business loan.
● In some cases, offering a personal guarantee can lead to improved loan terms or lower interest rates.
● Providing a personal guarantee can often lead to a loan being approved faster than an unsecured loan.
Having outlined the benefits, it is always important to make sure you are protected.
The most common questions we’re asked about Personal Guarantees
What is a personal guarantee and why is it required?
To reduce their exposure lenders can insist on one, especially for small businesses or those with weak credit histories.
When does a personal guarantee become enforceable?
At this point, the lender can pursue the individual who signed the guarantee for payment to recover the debt, interest, and legal costs.
What are the risks associated with signing a personal guarantee?
The risks are substantial.
Your assets, including your home, savings, and other valuables, are on the line if the business can’t meet its obligations.
Depending on the circumstances the consequences can be significant, including bankruptcy and disqualification from future director roles.
Can I challenge or negotiate the terms of a personal guarantee?
Yes, you can challenge or negotiate the terms of a personal guarantee.
It’s advisable to talk to an independent legal specialist to help you understand the risks and negotiate better terms, like limiting the scope and duration of the guarantee or specifying a cap on your personal liability.
What if I’m on the other side and need to draft a personal guarantee?
If you are a landlord or business director and need to draft a personal guarantee document, we can help. Drafting a personal guarantee is challenging. There are several reasons to seek the advice of a Solicitor:
● Legal Complexity:
Personal guarantees need to be legally sound, covering all potential scenarios where the guarantor might need to step in. There is no getting away from the fact that this needs a full understanding of contract law.
● Clarity and Fairness:
The terms of the guarantee must be clear and fair to both parties. Otherwise, should it need to be enforced you might find it open to challenge.
● Customisation:
Personal guarantees need to be tailored to the specific circumstances involved.
Your Personal Guarantee team at Tierneys Solicitors
Lauren Lancaster
Partner / Head of Litigation & Property
Joined Tierneys in 2011
Russel Raslan
Solicitor
Joined Tierneys in 2023
Adele Dowdall
Legal Assistant
Joined Tierneys in 2006
Emma Field
Legal Assistant
Joined Tierneys in 2019
Would you like to challenge a personal guarantee?
It is difficult to extract yourself from a personal guarantee but it may be possible to negotiate a reduction in the amount you are liable for.
If you think you might have a case, get in touch and we can advise you on your options.
Whether you are in receipt of a personal guarantee or you are the one drafting the document, it is important to protect yourself legally.
How we can help
Understanding your commitment:
We can clarify the terms, obligations, and potential risks of signing a personal guarantee.
Regular Reviews:
If you have existing personal guarantees, it’s crucial to review them periodically to ensure they still align with your business and personal circumstances.
Negotiation to end or limit your commitment:
As your business grows and its financial position strengthens, we can negotiate with the lender to release you from the guarantee or replace it with a less onerous form of security. An experienced negotiator may also limit your liabilities, such as capping the guarantee amount or reducing its duration.
Exit Planning:
When preparing to leave a business, we can help you develop a strategy for managing or terminating your personal guarantees.
It doesn’t matter if you are an experienced business owner or this is all new to you. It’s important you get the right legal advice.
Lauren and her team have a track record of dealing with all manner of personal guarantees for business owners.
Click on a link below to arrange a convenient time to talk to Lauren.
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