Magazine article Management Today

Accelerator: Keep It Legal - Mind What You Promise

Magazine article Management Today

Accelerator: Keep It Legal - Mind What You Promise

Article excerpt

Take care when giving a personal guarantee for your business's obligations, advises Trevor Watkins.

Starting up a business? Looking to expand? Need more space, vehicles or equipment? These are typical situations in which your bank, landlord or finance company may ask you personally to guarantee the commitments of your business.

Under a personal guarantee, you promise to ensure that your business meets its obligations (eg, to repay its loans to the bank) and to make the payments yourself if it defaults. In most cases, you'll be asked for an indemnity too, so even if your business escapes its obligations, you'll remain liable to pay.

What are the key points to watch out for when asked to give a guarantee? First, avoid giving one if possible, particularly if it's to be secured on your home. Suggest other types of security from within the business - say, a charge over its assets.

But if you're not in a position to provide the security for a loan, all may not be lost. If you have a viable business plan and a bank is prepared to provide funding, you may be eligible for DTI assistance under the Small Firms Loan Guarantee Scheme.

If you do decide to go down the personal guarantee route, be sure of what you are agreeing to and try to limit your overall liability. Rather than giving an 'all monies' guarantee, identify the specific debts or obligations covered. And ask for an upper limit on your liability. As your business grows, its cashflow needs may also increase, so that what began as a guarantee of a small sum quickly mushrooms. …

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