10 things to consider before you sign a PG
Posted on 19th Nov 2015 14:08:01 in Personal Guarantee Insurance
- 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?
- 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.
- Take legal advice to ensure you fully understand the implications and consequences of giving a personal guarantee. Never just sign a personal guarantee.
- 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.
- Where your landlord is asking for a personal guarantee it is usually best to offer a rent deposit instead.
- 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.
- 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.
- 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.
- If you have any personal savings with the bank these are in danger if the lender calls in the debt.
- 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.