When you run a business, you may need to borrow money to facilitate ambitious growth plans, buy new equipment, invest in new premises, or consolidate debts. As a director of your company, your lender may require you to sign a director’s guarantee before releasing funds.
What is a director’s guarantee?
A director’s guarantee provides a lender with confidence that the money they are loaning will be repaid, as it makes the company’s director(s) personally liable for settling the debt should the company become insolvent or renege on the terms of the contract.
A director’s guarantee can be secured against the property or assets of one or more directors. As with a personal secured loan, a director’s guarantee can put the director’s home or assets at risk should the business be unable to make the necessary repayments; therefore, agreeing to sign a directors personal guarantee is a big commitment.
Legal advice is recommended
Before signing a Directors personal guarantee, you should seek legal advice from an experienced commercial lawyer. They will explain the commitment you are entering into and ensure you are in full possession of all the necessary facts, enabling you to make an informed decision as to how to proceed.
At this point, you will be able to decide whether to approach a different lender, negotiate an unsecured loan, or take out insurance to guard against the potential eventualities associated with agreeing to a director’s guarantee.
In conclusion, there is a risk balance case to be made for every business loan application. You must understand the risks and protect yourself from them as best you can. You may need to invest to secure the future of your business. Independent legal advice will help you assess this decision and choose an appropriate solution.
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