What is a Personal Guarantee?
A personal guarantee is a legally binding agreement between you, in your personal capacity, and the lender. You are agreeing to pay all the sums due under your company’s loan agreement, in the event that your company defaults. This includes the loan sum and all additional costs incurred by the lender, under the terms of the loan, particularly as a result of any default.
Why am I being asked to give a Personal Guarantee?
You may have set up a limited company, for the purpose of purchasing property. If you are purchasing property, with the aid of a loan, it is probable that you will be asked to provide a personal guarantee, as additional security for the lender. This is standard in most property transactions which involve lending, particularly if your company has no assets.
Is my Home at risk?
Yes. If your home is held in your personal name, by signing a personal guarantee, the lender could pursue your home, if your company is unable to keep up the loan repayments. The lender could make an application to the court for possession of your home so they can sell it and recover the sums due to them.
Are all Personal Guarantees the same?
No. You should obtain independent legal advice to ensure you are fully informed of the terms of the guarantee. Some guarantees will have a fixed sum that you are guaranteeing and some will have no limit. Each lender will have their own “events of default” which will lead to the loan becoming repayable in full. You should ensure you are aware of these before signing any guarantee so you know when the lender may call in the debt due. The guarantee may allow for the lender to advance further sums to your company without notifying you, so your potential liability may increase during the term of the loan.
Why do I need Independent Legal Advice?
It is usually a requirement of the lender that the individual guarantor obtains independent legal advice so they are fully informed of the potential risks and consequences of entering into the personal guarantee. It is also the responsibility of the independent advisor to determine that the guarantor is not being forced to sign the guarantee and that they are entering into it voluntarily. This means that the advice is normally required to be given at a face to face meeting. Legal advice should always be sought when signing a legally binding agreement which potentially puts your personal assets at risk.
When does my Guarantee come to an end?
Your personal guarantee will usually remain in force until such time as your company pays back the loan, in full. This will include any further advances your company has taken. Before entering into a binding guarantee, you should ensure you have confidence that your company has the ability to repay its debts.
Our team of experienced commercial property solicitors in Hampshire and the Isle of Wight offer you comprehensive advice on risk management, and how to get the most commercial value from your property, call us on 01329 822 333