What are the alternatives to a directors personal guarantee?

As a director of a company, you may be asked by a lender or third party to provide a personal guarantee on behalf of the company. This may cause some concern, and therefore it is important to know what alternatives are available to you. Here we will take a look at some of them and the advice you might need.

When might you be asked for a directors personal guarantee?

The most likely time that you will be asked for a guarantee is when the company borrows money and does not have the assets to cover security for the loan. Some recent research shows that this may be required for a loan as low as £10,000.

Another time that the issue of a directors personal guarantee might arise is if you are entering into a lengthy commercial lease. Many landlords will want to cover themselves in case the company defaults on its payments.

What are the alternatives to a directors personal guarantee?

You may be able to offer a second charge against company assets. But remember that this will only be of use to a second charge holder if the first charge has been paid in full.

Another alternative is that if the company has a parent company, the latter may be able to step in to offer a guarantee.

Finally, invoice discounting is an option. This involves selling unpaid invoices to the third party, meaning that they own them and will be responsible for their collection. This is an increasingly popular form of security.

Before entering into any of these agreements, you should take independent legal advice from experienced lawyers such as Parachute Law who can explain what responsibilities you will be taking on.

Also remember that when taking legal advice, you should ask for information on directors personal guarantee insurance. The cost will depend on your circumstances, the size of the company and the debt you are guaranteeing. Your advisor will also be able to explain whether the insurance will cover the full extent of your guarantee and what exclusions may apply.