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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?

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.

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Hire Purchase

Hire purchase usually involves paying the VAT and a deposit up-front. Fixed monthly repayments are then made, affected by whether you pay off the entire loan over the term or chose a final balloon payment. The final option to purchase is guaranteed for a nominal fee, transferring ownership of the asset to the customer.

Hire purchase is well-suited for situations where a company definitely wants to own the item at the end of the term, often where the asset has a significant usable lifespan, a high residual value and will not need to be upgraded.

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Lease Finance

Equipment leasing allows a business to acquire hard or soft assets without the upfront costs associated with large purchases. A lender purchases the item, the business then leases it through fixed monthly payments over an agreed term.

Typically, asset finance is provided for high value ‘hard’ assets such as machinery, equipment, or vehicles, but Portman also arranges asset finance for ‘soft’ assets such as IT, fitness, catering, or vending equipment, as well as premises fit-outs, furniture or even air-conditioning.

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Business Loans

Business loans are a way of borrowing money, which is repaid in monthly instalments, including interest, over an agreed term. Business loans are a common way to help smooth out cashflow fluctuations and take opportunities where otherwise they could be missed due to a lack of working capital.

Business loans can be secured or unsecured. Portman typically provides unsecured loans which can be more flexible and do not require collateral but are likely to require a personal guarantee. Secured loans are tied to an asset which the lender can claim ownership of if repayments are not made, these may be used in equipment refinance deals.

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Start Up Loans

New businesses often need an injection of finance to get them off the ground. Asset finance for new businesses allows you to focus on running your company and bringing in customers, confident that you have the equipment, vehicle or stock you need without the large initial outlay.

Using finance for your equipment means that you preserve the credit card or overdraft for contingency and operating expenses when the unexpected happens.

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Equipment Refinance

If you recently bought a high-value item outright but would now prefer to have financed it, we can help with a sale-and-lease-back agreement. If the item is less than 3m old, give us a copy of the invoice and we will calculate the current value. After a few checks and acceptance of the term and monthly repayments, we can give you the cash equivalent of the invoice to put back into the business. You’ll then make fixed monthly payments including interest, whilst your asset earns you money.

If your business owns high value assets that are not currently on finance, subject to a valuation, it is also possible to use them as security for a loan, with lenders offering a cash loan up to a % of the asset’s value.

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Recovery Loans

Recovery Loans offer an excellent way of making sure your business gets back on its feet after the long-term effects of the pandemic and subsequent supply chain disruption. Businesses with turnovers up to £45m, including those who have previously benefited from the government’s CBILS, BBL or RLS, can apply.

Recovery Loans can be used for any legitimate business purpose or simply to provide cashflow. Rates are capped and the government continues to guarantee 70% of the outstanding balance, giving added security for lenders who are now able to consider finance for businesses who may have previously found it difficult to obtain.

Up to £2m can be borrowed on terms from 2 to 6 years. Your personal private residence cannot be taken as security.

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