Are you on the hook with a Personal Guarantee?

If you are giving a personal guarantee in relation to your company, we can advise you as solicitors on the key legal matters you should consider.

What is a personal guarantee?

A bank lending to your company will often ask for a personal guarantee to make you personally responsible for repaying the company’s borrowing if it fails to repay.

The bank will be looking at you as a guarantor if you have sufficient assets (such as your house) and/or a good payment history. Lenders might also ask for security over your assets.

Why have you been asked to give a personal guarantee?

If your company is newly established, there will be no credit history for the bank to look at and there may not be very much in the way of assets.

If your company is an established company, the bank may have doubts about the creditworthiness of the business.

What are the things you should need to consider about a personal guarantee?

You should think about the following:

• What is the amount that you are guaranteeing?

• Is the guarantee for a fixed amount or for an overdraft that may go up?
• Is the guarantee is for a limited period or dependant on when you have a written release from the bank?

What happens to the personal guarantee if you sell the company?

You should remember that personal guarantees remain until specifically released by the bank. A bank will usually not release you, particularly if the company has financial difficulties, unless the new owner with sufficient assets and/or a good payment history gives a replacement personal guarantee.

What if there is more than one personal guarantor?

If there is more than one personal guarantor, the guarantee will usually entitle the bank to recover money from any of you. You will need to think carefully about the credit standing of the other guarantors.

Have you been asked to give a personal guarantee?