A director guarantee is a document that a lender may insist on being signed before they are willing to agree to lend money to your business. This is most often the case for new start-up businesses, but it can also apply to businesses that are still in their infancy and need a cash injection to invest in new stock, staff or premises to push the business up to the next level.
Is it a risk to sign a director’s guarantee?
Although they are relatively common, signing a director guarantee is not a decision to be taken lightly. The very nature of a director guarantee means that, in the event that your business is unable to repay its debts to the lender for whatever reason, you as the signatory become personally liable for the debt – even if this means that your own personal capital or assets are at risk as collateral.
Where can I seek advice?
General information on being the director of a limited company and all that that entails is available at GOV.UK and is a good starting point. However, it is absolutely essential for your own protection that you seek professional legal advice before signing a director guarantee. Specialists such as Parachute Law can provide you with tailored advice which is specific to your role in the company and to your business’s industry before you sign.
Signing a director guarantee is definitely not something to be undertaken without serious thought – again, specialist professionals can assist you with drawing up and fully understanding the legal document in question and all of the implications. Unlike some other contracts, the director remains liable, even if he or she were to leave the business, until such a debt is settled.
A lawyer can also provide you with useful information on personal guarantee insurance policies. This may be a good idea for you, providing a good level of protection if it ever happens that you become personally liable for a business debt.
