Understanding Personal Guarantees for Business Loans

How Personal Guarantees Impact You And Your Business

Are you exploring funding options to scale up, expand, and enhance your business? The term personal guarantee may already be on your radar. Whether familiar with the term or encountering it for the first time, it’s crucial you understand this legal agreement as it’s likely you will come across this for most forms of business loans. Personal guarantees also have the potential to impact your personal finances, making it even more imperative to understand the legal implications before deciding whether it’s right for you and your business.

What Are Director Personal Guarantees?

In essence, a personal guarantee stands as a legally binding agreement from a business owner to a finance lender. It states the business owner or director will be personally liable for repaying the loan if the business defaults or becomes insolvent. As a common requirement from a large portion of lenders, personal guarantees reduce risks to lenders, serving as a helpful way for business owners to access funding that might otherwise have been out of reach.

What Is The Benefit Of A Guaranteed Business Loan?

Signing a personal guarantee can make you eligible for funding you might not have been able to receive otherwise. This is particularly relevant for those with poor credit scores, few assets, and limited credit history like new start-ups. With this increased access to finance, your business can pursue investments in order to achieve your business goals, providing you the necessary resources for you to progress.

More specifically, by pledging your personal capital and assets you provide the lender with more security. This also demonstrates the confidence you hold in your venture as a business owner and your commitment to repayments, increasing the likelihood of receiving funding, and even potentially allowing you to secure a higher amount.

What Does A Director’s Guarantee Involve?

You sign personal guarantees alongside a business credit agreement.

It’s important to check how much payment the lender needs for assurance. While most will request the full amount, others will ask for as little as 20%. If the loan is high, the lender may also request personal guarantees from more than one shareholder.

When Do I Need To Provide Personal Guarantees?

• Asset finance agreements
• Business Loans
• Invoice Finance Agreements
• Property Leases
• Short-Term Loans
• Government-Backed Finance

Do I Need Personal Guarantee Insurance?

Personal guarantees do allow for growth, but if you default on a payment they are also potentially risky. Defaulting on a personal guarantee could result in personal bankruptcy or asset seizure, along with very legal implications.  To protect yourself, consider seeking legal advice or explore options such as Personal Guarantee Insurance to provide added layers of protection.

Signing a personal guarantee should never be taken lightly. You may have complete confidence your business will be able to meet repayments, however there are circumstances that can always lie outside of your control, for example economic conditions or a disastrous event such as Covid can affect your ability for repayments. It’s important, therefore, to always protect yourself and your business.

Here is a guide on Personal Guarantee Insurance by Financial Affairs.

What About Business Funding With No Personal Guarantees?

It should be noted that whilst many lenders require a personal guarantee, at Portman Finance Group, we understand this is not your only option. Our financial solutions cater specifically to businesses in the UK, offering funding both with and without personal guarantee. No personal guarantee loans are typically used to spread the cost of tax bills.

Our Solutions

With our team of experts ready to guide you, we can offer fixed rate funding and can assess your eligibility for commercial, flexi and short-term loans to find the best available deal for your business. Talking to over 25,000 customers each year who are looking to discuss their funding options and securing over £1billion in commercial finance for UK SMEs, get in touch with our experts today.

There are plenty of finance options out there for you. Deciding which is right for you will take time and consideration. But why should you choose these financing options from Portman?

At Portman Finance Group we are focused on serving the needs of you and your businesses. We have been doing so for thousands of other businesses since 2007, raising over £1 billion in funding for UK SMEs. 

We take the time to truly understand your business and what you need, ensuring we secure the right funding for you. As both a broker and a lender, we can also offer financial options that others cannot. We promise you will have one point of contact from start to end, providing you solutions quickly, sometimes within hours.

Written by Anam Peeran

Social Media & Marketing Executive

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