There are a number of issues surrounding the signing a personal guarantee, also known as a director guarantee, for business finance or supply in the first place.
How well have you planned to get the finance or supply?- The further ahead you plan and action the more likely you will be to be able to mitigate the potential liability under a PG and maybe even signing one altogether.
How good are the company’s financial reporting and controls?- The more seat of the pants the business is in this regard the more likely that the wrong decisions will be made.
How desperate is the business for finance?- The more desperate you are for the funds, the more onerous the lending terms and more likely you will sign a PG without understanding the consequences. If the situation is so desperate is borrowing more money the right thing to do?
How good is the company’s credit rating?- This can have an important bearing on the access to lending and the terms on which the lending will be provided.
How good is the director’s personal credit rating?- For some lenders this is an important consideration when lending money to a business. In surprisingly few cases however it is rarely an issue when it comes to signing a PG despite the less than favourable director’s personal credit rating. So some lenders are more than happy to lend on the basis of less favourable terms but don’t care if the security they are taking through a PG may be of no substance.
Is the business just borrowing good money after bad?- Business owners can be notoriously blinded by the need to keep the business alive. Such decisions can lead to the demise of the business and cripple any opportunity to get it and the guarantor back on their feet financially if the situation is not reviewed and other options considered rationally.
Before signing a personal guarantee feel free to contact us to discuss your options.