What To Consider When Signing A Personal Guarantee As A Company Director

If a business is looking to secure funding, it is often the company directors that will be required to give a personal guarantee as security. When this happens, the company director then becomes personally liable for the debt. If the business was to default on its repayments, it would fall to the company director, as the person that signed the personal guarantee.

Generally speaking, a personal guarantee agreement is drafted to protect the interests of the lender. This is why a company director needs to be very careful when signing a personal guarantee. We would recommend that if you are a company director in this position, you speak to our team of corporate lawyers. We can help you to carefully assess the risks. There is lot to consider when signing a personal guarantee as a company director. This is what we look at below.

It is important to note that personal guarantees are legally binding contracts. Once signed they become legally enforceable. While the terms change on personal guarantees for company directors, there are key points to expect and to look out for.

For example, if the company defaults on the loan, the personal assets of you, the director, are at risk. This includes your home, as an example, which could be sold by the lender, with approval form the court. It is also possible that the creditors may demand immediate repayment. This can be done at their discretion and without notice.

You may find that your personal guarantee includes indemnities. This means that you could be liable for additional losses that are suffered by the lender. Our corporate lawyers will help to ensure this is avoided, wherever possible.

There are cases where guarantees may extend to future debts and accrued interest. This is known as ‘ongoing liability’. It is essential that you gain legal advice to review the terms in the personal guarantee agreement to avoid any unexpected obligations like these.

You will find that there is a genuine risk of bankruptcy too. This could lead to disqualification from the company and from future directorships. Falling behind on repayments can also negatively impact your personal credit rating and score. This is the case even if bankruptcy is avoided.

Here at Burgh Thorpe Solicitors, we know that signing a personal guarantee as a company director can be a vital step to securing funding and growing the business. However, professional legal advice is always advised. This ensures that you are protected and aware of any potential risks. Call our corporate solicitors in Peterborough now to see how we can help ensure that you and your business is protected.