Director’s Personal Guarantee

We specialise in corporate law, litigation, commercial and residential property

What is a Personal or Directors' Guarantee?

A Director’s personal guarantee is a commitment made by a company director to take personal responsibility for the repayment of a company’s debt. Essentially, if the company defaults on its obligations, the director becomes personally liable to repay the debt using their personal assets, such as savings, property, or investments.

Winning Award

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Private

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Legal Protection

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Joint and Several Personal Guarantees

A joint and several personal guarantee involves multiple guarantors who share responsibility for a loan, lease, or overdraft. Under this arrangement, each guarantor is both individually and collectively liable for the entire debt. Creditors can pursue any one guarantor for the full amount owed, regardless of the initial division of responsibility. This means if one guarantor is unable to meet their obligation, another can be held responsible for the full balance.

When are Guarantees Required?

Lenders or creditors typically request guarantees when there is uncertainty about the borrower’s ability to meet financial obligations. Some common scenarios include:

Small Business Loans

Lenders often require a personal guarantee from small business owners, particularly if the business has limited credit history or is newly established. This ensures that the loan will be repaid even if the business defaults.

Startup Funding

Entrepreneurs seeking funding for a startup may need to provide personal guarantees, as investors often want extra security when investing in businesses without a track record.

Commercial Leases

Landlords may request a personal guarantee for commercial leases, especially from tenants who are new businesses or lack strong financial history. This ensures rent and other obligations will be met.

Credit Cards and Lines of Credit

For individuals with poor or limited credit history, lenders may require a personal guarantee before extending credit.

Corporate Loans or Financing

Lenders often seek personal guarantees from directors of small or newly established corporations or limited liability companies (LLCs) to secure repayment if the business defaults.

While a limited company is a separate legal entity from its directors, meaning directors are not typically responsible for company debts, lenders often seek additional security through a director’s personal guarantee. This provides assurance that debts will be repaid even if the company cannot meet its obligations.

To ensure directors fully understand the implications of this commitment, lenders require them to obtain independent legal advice (ILA). The solicitor provides clarity on what the director is agreeing to and the consequences if the company fails to repay the debt.

A director may be asked to provide a guarantee for:

A director may be aware of the company’s financial situation and recognise that without their guarantee, the company may be unable to secure necessary funding. While they might feel they don’t need ILA, the lender will require it to ensure the guarantee is legally enforceable.

It’s essential to carefully listen to the independent solicitor and fully understand the terms before signing the guarantee.