Personal Guarantees are Evil

A Personal Guarantee is used by the lender or financial institution to secure a loan or lease.  A Personal Guarantee is used to protect the lenders and financial institutions when providing a loan or lease. When signed by the company director, a Personal Guarantee waives the limited liability of the company during the debt recovery stage…. Basically, it is a promise to pay the debt.

Securing loans or leases can be essential to the growth of any business. They will aid the growth of the business, the lender will not dictate how the loan is spent, they can be easy to access and currently, interest rates are low.

Although, all is not what it seems. In securing a business loan or lease the lender or financial institution will require that in the case that the loan cannot be repaid, whether that is that you fall into arrears, enter insolvency or have not followed the terms and conditions of the agreement, the lender or financial institution will secure the loan against your assets. To Secure the loan, most lenders or financial institution will utilise a Personal Guarantee.

Current climate

Although interest rates are low, and insolvency rates are lower in quarter 1 of 2019 than quarter 4 of 2018. There are still factors for concern for businesses, especially in todays climate.

  • The apparent collapse of the high street
  • Businesses are open to threats that can cause trading problems
  • Changing property values  
  • HMRC debts
  • Loan sales

Understanding different factors of Personal Guarantees

Secured or Unsecured – Personal guarantees can be secured or unsecured.

If unsecured, the lender can act quickly in securing via fixed or floating charge, or a fixed second charge on personal assets e.g. your family home

Are they enforceable? – YES.

Standard practice would be for the creditor to take the debtor to court.

Scary? Yes, Evil? Absolutely, End of the World? NO.

Informal arrangements can be made through negotiation with the creditor before legal action Is enforced. If informal arrangements cannot be made then, specialist advice and liaising with third parties such as Bell & Company are available options.

How can Bell & Company help?

Bell & Company are receiving more and more inquiries from people regarding PGs. We have honed our skillset and coupled that with a proactive strategic approach to assist people through the PG process.

  1. Lenders are more likely to engage with Intermediaries – We have experience in dealing with personal guarantees and lenders will recognise our submission. Our proposals and collation of data carry weight.
  2. We provide impartial advice – The advice we provide will always have your best interest in mind
  3. Provide a strategy– We recognise that each case is unique. We create strategies suited to each client’s wants and needs

A client had personal guarantee exposure of £6.5million after their business failed. He approached us with the threat of Bankruptcy looming over him.

The Client had lived with this spectre of debt since the 2008 crash and saw no way out.

He hadn’t heard from his Bank in several years and had hoped, in vain, that the debt had gone away.

After years of silence from the Bank, our client received a Statutory Demand ‘out of the blue’ from them – the start of the process, potentially leading to Bankruptcy.

If the Statutory Demand was ignored it could have resulted in a Creditor’s Bankruptcy Petition and the family home would have been under serious threat. The equity on the home of c£475,000 was at risk.

Bell & Company were instructed to negotiate a settlement of this debt, with strict time constraints imposed by the issuance of the Statutory Demand and any pending Bankruptcy Petition thereon.

With the assistance of a third party, the Client raised funds and was able to settle this debt at £175,000 on a Full & Final basis.

For expert advice on Personal Guarantee exposure, or any material debt issue – Call us now on 0330 159 5820 or read our brochure

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Your first consultation with us is completely free and you are under no obligation to proceed with us. However, it involves a thorough financial review and a tactical assessment of your various alternatives. We are assured you will leave the meeting with a clear understanding of your options and possible outcomes.

Specialist, Impartial Advice

Bell & Company is not allied to any financial institutions, agencies or outside bodies. This is one of our greatest strengths. It means that, unlike others, we are able to provide impartial advice that is in each client’s best interest and to operate scrupulously on their behalf, free of outside interference.

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