A directors personal guarantee is sometimes requested by lenders when funds are being forwarded to a company. It can have a devastating impact on the director’s personal financial position if the company fails.
This is a common scenario, but the Federation of Small Businesses has raised complaints about the lending practices of some of the lenders. They suggest that directors’ personal guarantees are being demanded in unreasonable situations or with overly onerous terms.
What is a directors personal guarantee?
A directors personal guarantee has the effect of putting a director in a position where they could lose their personal assets if the company that they are guaranteeing fails. However, obtaining specialist advice can mitigate some of the harsher terms that are being imposed. Therefore, seeking support from legal experts such as https://www.parachutelaw.co.uk/director-guarantee is vital when being asked for a directors personal guarantee.
Why have there been complaints about directors personal guarantees?
Despite the checks and ability to obtain specialist advice, there are still some sharp practices being undertaken by certain lenders. These practices could include requiring a directors personal guarantee for a particularly small loan or requiring excessive coverage. Furthermore, a directors personal guarantee may not be released even if the director sells the company or exits as a director, something which is not always fully understood at the time of providing the guarantee.
The financial ombudsman service has received numerous complaints relating to personal guarantees, the latest from the FSB.
Some of the main complaints include lack of affordability, lack of a link between the guarantor and the borrower and difficulty in being released from the directors personal guarantee as circumstances change.
Anyone providing a directors personal guarantee should consider the terms very carefully and obtain independent legal advice wherever possible.
