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10 things to consider before you sign a PG

Posted on 19th Nov 2015 14:08:01 in Personal Guarantee Insurance

  1. Explore other options you might have that would allow the business to borrow money without you being personally liable. Will the bank accept alternative security? 
  2. When you give a personal guarantee the bank will often ask for a charge against your house to secure repayment. Think carefully whether you are prepared to put your family home at risk before agreeing to this. 
  3. Take legal advice to ensure you fully understand the implications and consequences of giving a personal guarantee. Never just sign a personal guarantee. 
  4. If you can avoid giving a guarantee, do so, because it can have severe implications for your personal finances (including bankruptcy) if the company can’t repay. 
  5. Where your landlord is asking for a personal guarantee it is usually best to offer a rent deposit instead. 
  6. A personal guarantee is usually a continuing security, which means that there is no termination date unless you are prepared to pay the bank the full outstanding balance of the loan. 
  7. If you have to give a personal guarantee, cap your liability to an amount you can afford but always remember that interest and costs can be added to the fixed amount. 
  8. Check whether you have already signed a personal guarantee with the bank as they are cumulative. This means that if you sign a guarantee with a limit (say of £10,000) and the bank asks you to sign a new guarantee (perhaps because the business needs to increase its loan) with an increased limit (say £20,000) then unless the bank expressly releases you from the first guarantee in writing, your liability will now be £30,000 not £20,000. 
  9. If you have any personal savings with the bank these are in danger if the lender calls in the debt.
  10. Consider that if any co-directors have also given the bank a personal guarantee this does not mean that you repay the bank in equal proportions. The bank will go against the director who they believe has the most assets.