When a company is unable to fulfil its financial obligations, a director can cover the costs themselves through a personal guarantee. The director guarantee does not mean you take the blame for any debts your company incurs, but it does mean you’re responsible for repaying them after pledging to do so. As a result, it’s important to be fully informed of the types of guarantees you can offer, and which is more appropriate for you.
Unsecured Director Guarantee
As you know, a director guarantee means you’re agreeing to cover the costs of any debts on behalf of the company. But an unsecured guarantee is not tied to any specific asset, rather, it depends entirely on financial reimbursement.
This method depends entirely on your income and credibility, as lenders may not consider you trustworthy if your income or track record suggests an inability to repay loans. Repayments will typically be higher than their secured counterpart, too, as lenders will want to earn greater interest for long-term investments.
Secured Director Guarantee
Secured guarantees, then, are dependent on specific assets – or collateral – to reinforce the director guarantee. This typically takes the form of property, often including your own home, which is something most people would agree they don’t want to risk losing.
Remember, by putting your name forward in these agreements, you’re risking your own assets and risking personal financial troubles. Therefore, it is always in your best interest to seek professional advice before entering into a director guarantee.
Regardless of your choice, you’re lowering the risk for your lender, in turn helping secure crucial investments. But it’s important to be responsible with what you’re willing to put on the line.
If you’re unable to fulfil your promise in either case, settlement terms will be negotiated. If neither party can reach an agreement, the case may be taken to court. This is why it’s essential to fully weigh out your options in advance and discuss the agreements in depth with professionals and those closest to you – a loved one won’t appreciate you offering your home as collateral without their knowledge.
