What is a personal guarantee? Why would I need one?
At the height of the business boom, banks frequently provided loans to companies. But, banks often required that the directors of these businesses sign an agreement, A Personal Guarantee. If the company is unable to repay these loans, the signer, or guarantor, would be personally responsible for the repayment.
A Personal Guarantee is only problematic if the business has breached the terms of agreement of the loan. Although, they have become more of an issue since the 2008 financial crash. Therefore, companies now find themselves in difficulty, and lenders are entitled to pursue bankruptcy against the guarantor if… the guarantor cannot repay the terms agreed when the original agreement was signed.
Limited company vs. sole traders/partnerships
Personal Guarantees are generally signed by directors of limited companies. Sole traders or those who work in a business partnership will often have been issued loans in their names. These loans can put individuals at risk of losing personal assets or even being declared bankrupt if repayment fails.
What if I can’t pay?
If you signed a Personal Guarantee for your limited company and you fail to keep up with repayments, your lenders will pursue you, to recover the outstanding debt. If you go straight to an Insolvency Practitioner, you will find they are legally obligated to try and get the best deal possible for your lenders. Moreover, if your bank account is overdrawn, your creditors can take legal action, and you could potentially be investigated.
What do I do next?
There are always options and you don’t have to face the stress and uncertainty of being liable for repayments alone.Bell & Company are pre-insolvency consultants who specialise in helping people affected by Personal Guarantees.
If a loan has been sold off by your original lenders to a ‘vulture’ fund, the ‘vulture’ fund will pursue debt repayment aggressively. However, Bell & Company’s involvement will help, when dealing with ‘vulture’ funds.