Definition of “Personal Guarantee” Loan
Basically, a Personal Guarantee loan is a loan contract in which a person agrees to be responsible for the financial obligations of a borrower to a lender in the eventuality that the borrower fails to pay an amount owed under the loan agreement. When you apply for funding by applying for a loan or overdraft, you may be requested to provide a personal guarantee in the event that the business fails. A guarantee should only be provided only after you have considered carefully the potential liabilities you will be exposing yourself. One thing to avoid, if possible, is unlimited guarantees.
The purpose of a personal guarantee contract serves the interest of both the borrower and lender. For the borrower, the agreement states the terms of payment, including the assessment of late fees or penalties in the event that a payment is delayed. The guarantee is normally signed by the guarantor. But a guarantee can be enforceable even though it is not in writing. The guarantee could be implied from the conduct of the parties such as a partial payment after a promise relied upon by the lender to extend credit to the borrower.
Lenders can seek to obtain guarantees in the form of Limited Liability and Personal Guarantees. Businesses that do not have a track record may not qualify for credit of their own volition, therefore they may have to opt for a personal guarantee loan. A benefit of establishing your business using a limited liability structure is that directors and/or shareholders are protected from being sued by creditors for your personal assets.
Payment on demand means just what it implies. If the business owner is either late in paying or fails to pay at all, you’ll be expected to find the cash instantly. Joint and several liability means that if there are more than one person acting as guarantors, then it is entirely up to the creditor can choose whom they want to go after to recover the loan.
Besides having to honor the company’s debts, the borrower will have to pay up all outstanding personal loans, and this may include your mortgage and any indebtedness on your own personal account, together with bank charges; that means everything that you owe.
To minimize risk, a potential guarantor can take precaution by asking the borrower to save up a deposit first, so that the lender has alternative safeguard. He may also want to consider what additional information the borrower is able to provide to the lender, so that the lender can reassess the need for a guarantee.
There may not be one version of a personal guarantee contract that will suit every situation but there are different templates available that can be adapted to each circumstance. Net Lawman’s Personal Guarantee Agreement Document have been drafted by an experienced team of Solicitors and Barrister which can be used to join one or more guarantors into the contract.
If you are looking for business credit without personal guarantee, click here to fill up the application form online. Application takes only a few minutes and you may get approved within 2 business days.