Once you sign a director guarantee, you are committed to guaranteeing the company’s liability to a lender. Once you do so, you may be putting your personal assets at risk; however, there are circumstances in which this is not the case.
If you are a director of a limited company or are considering becoming one, it is vital to understand the responsibilities that come with this position . If you fail to do so, you may be putting your property or other assets at risk.
What is a director guarantee?
If your company needs extra cash to expand or cover its current liabilities, you may consider seeking external funding. Your lender may think the company’s assets are insufficient to secure the loan; in this case, as a director, you may be required to provide a director guarantee. It is important that directors fully understand the financial risk they may be exposing themselves to, so let’s consider the options you are likely to face.
Before deciding on a course of action, it is recommended that you seek independent legal advice from a solicitor, such as those at Parachute Law. Remember that even if yours is a small company, you and the company are separate legal entities; therefore, it is important to ensure the advice you receive is independent.
What kind of guarantees might you be required to sign?
Your lender might require you to sign a secured guarantee, which means you will have to provide a list of assets or collateral to guarantee the loan. If the company fails to meet the repayment schedule, the director or directors who have guaranteed the loan, jointly and severally, will become liable. At this point, the lender has the right to seize the personal assets that have been provided as security. These can include property, cars, and investments.
On the other hand, an unsecured guarantee will not need collateral to be pledged. In this case, the lender relies on the director’s creditworthiness and its own knowledge of the director’s standing.
