What are Personal Guarantees?

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In no way am I knocking the value or significance of something like a formal academic qualification one would proceed to acquire in business, but there are certain things which academia seems to overlook when it comes to the practical running of a business, company or any other enterprising organisation. Personal Guarantees (PGs) come into focus as one such topic forming part of the practical business world which isn’t covered to the degree which I personally believe it should, because a PG can indeed make for the difference between the success and failure of your business at a particularly crucial point in time.

A Personal Guarantee is an agreement between a supplier or lender and a borrower, drawn up by the supplier/lender, to secure the credit which they are extending to the borrower. Obviously suppliers or lenders come in different shapes and forms, a couple of which common ones include the likes of banks loaning money to their client as well as something like a raw materials supplier of goods which a certain business uses to create their final product or service that is to be ultimately sold to the end-client.

The legal implications of the PG come down to the authoritative figure of the business that is borrowing the money, i.e. the founder, director, manager, owner, shareholder, etc, accepting personal liability for any debts that the organisation would incur in the event that the business would be unable to honour its debt repayment.

As is perhaps evident taking into account the many dynamics surrounding the operation of a formal business, there are many reasons why a director, shareholder, founder or owner of a business would be willing to commit to binding themselves to the terms and conditions of a PG. At the core of these many reasons is that of this essentially making for a much more accessible avenue through which SMEs can access funding which they otherwise would not have been able to access through any other means. The current economic climate is no joke – it’s tough financially for businesses these days, particularly with regards to accessing much-needed capital to pursue what are justifiably some very real opportunities which they’ve identified to have a high probability of success.

As a result, a PG becomes somewhat of a crucial option which is responsible for most of the funding that actually materialises these days. In some instances it is the singular option available as a security which lenders can rely on.

A feature of PGs which particularly stands out is that of how lenders are not required to wait for administration or liquidation proceedings to commence with the calling in of their Personal Guarantee. The lender has the power to request the fulfilment of the outstanding balance in this way, as soon as there’s a declaration on the part of the business that it is unable to service its debt.

While this clearly comes to light as perhaps the major defining factor of the associated security, it is indeed part of the agreement, made clear before it is signed off on. However, as a guarantor you can get Personal Guarantee Help through which there are some options available to you to reduce your liability.