You may have come across the term ‘director guarantee’ for the first time, and if so, you may well be wondering what it is exactly. In this brief guide, we explain what it’s all about and answer some of the questions that may arise from drawing up a director guarantee.
What is a director guarantee exactly?
In short, this is a personal guarantee from a director that they will be responsible for any debt or financial obligations owed by the company, should it fail to make this cost. This means that the director in question would have to use their own capital or assets to make good on these payments.
What are the benefits?
The main benefit of a director guarantee is that a limited company may be able to borrow more money than it otherwise would, which may be vital in order to stay afloat, or even to get off the ground. These kinds of guarantees are common in business mortgage applications and business loans, but they can also be used for lease or supply agreements. They are particularly helpful for new businesses that don’t yet have a good credit rating.
What are the risks?
This kind of guarantee does pose a significant personal risk for the director. That being so, you should never agree to guarantee a loan that is worth more than you can afford to lose. Find out more and get professional advice from an experienced legal specialist, such as can be found at https://www.parachutelaw.co.uk/director-guarantee.
This kind of guarantee is quite common in small limited companies that do not have enough capital or assets to guarantee obligations. Although it poses individual risks, it can be enormously helpful in securing finance that might be essential to help a company grow or even stay afloat in difficult times.
