Personal Guarantee Loan Contract Review
After a personal guarantee loan contract is signed, it is good to go over it and understand what your liabilities are in the contract and what powers the bank has to recover the loan. Most new business set-ups would need assistance from the bank to get a start up loan. They are generally in a weak bargaining position as they are not able to prove how successful their businesses will turn out to be.
For those who are setting up a limited company, they often have to furnish the bank a personal guarantee before the loan is extended. It is critical that a business owner fully understand the implications of such a loan with regards to the business. A personal guarantee is a promise that you make to your lender and this makes the person who signs the loan agreement personally liable for the borrowed sum of money.
Limited and unlimited guarantees are the two types of guarantees. A limited guarantee is one which will set a maximum limit with regards to the amount the guarantor is liable for whereas an unlimited guarantee will have no limit. A limited guarantee will also make the borrower liable for interest and other bank costs. Another caution to take note of is that the personal guarantee may still stand even if the original loan has been paid off. This would imply that when you need to borrow from the bank again, the same guarantee agreement still binds.
A guarantee will also be cumulative; which means that if you sign a guarantee for $15,000 and the bank requests that you increase it to $20,000, you are in a position to be liable for $35,000 unless the bank has terminated the previous guarantee agreement. Whatever savings that you may have will be liable to be seized at any time to pay off the debts accumulated by your business.
In this situation, you can ask the bank to be allowed to discharge yourself from a guarantee but the bank is not likely to consent to your request. You can also check over the fine print in the loan contract to see if there is a clause that may allow you to terminate the agreement. For termination of guarantees, the normal procedure is to give your bank a period of notice of 3 to 6 months. When this period ends, the amount that you will be liable for will be capped at the amount that your business owes at that period.
Before you opt to terminate the guarantee, you should attempt to ensure that your business owes little to nothing before you proceed. If you think that you have signed a personal guarantee, you can approach your bank and request them to provide you with copies of the personal guarantees that have been signed. Then, you should scrutinize over them and understand the clauses that the bank is relying on for security in your business.
If you are looking for a business funding with no personal guarantee, you can apply online here. It only takes a few minutes to fill out the 2-page application form and approval can be as little as 2 business days.