What Should You Consider Before Signing a Directors Personal Guarantee?

Signing a director’s personal guarantee can feel like a necessary step when you’re trying to secure finance for your business, but it’s not something to take lightly. By signing, you’re putting your personal assets, like your home or savings, on the line if your business can’t meet its obligations. So before you grab that pen, here’s what you should consider.

Understand What You’re Agreeing To

A directors personal guarantee is essentially you saying, “If my business can’t pay, I will.” Lenders require this as extra security, especially for smaller businesses or startups that may not have a long credit history – it’s a way for them to ensure they get paid, even if the business fails.

So, before signing anything, make sure you fully understand the terms. What exactly are you guaranteeing? How much? And when would the lender come after your personal assets?

How Much Risk Can You Afford?

One of the biggest considerations is how much personal risk you’re willing – and able – to take. If the business fails or struggles, will you be able to cover the debt personally? Are your assets, like your home or savings, worth putting at risk? It’s important to have a clear picture of the worst-case scenario before committing to anything.

Are There Any Alternatives?

Before signing a director’s personal guarantee, it’s worth exploring if there are any other options. Can the business secure finance in another way, without needing your personal assets as collateral?

Maybe the lender would accept partial guarantees or shared guarantees with other directors. It’s always worth negotiating and seeking alternatives that reduce your personal exposure.

Get Professional Advice

Finally, don’t sign anything without seeking professional advice. Speaking to a financial advisor or solicitor can help you understand the full implications and whether this is the right move for you and your business. It’s better to get a second opinion than to regret it later.

In short, think carefully, consider your risk, and explore alternatives before you sign a director’s personal guarantee. Your future self might just thank you!

About the author

TMTAdmin

Kim Lee lives in Tampa, Florida and focuses on living an intentionally happy life, helping others live better, and having a whole lot of fun. She loves to write, read, enjoy the outdoors, and play with dogs.

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