The consequences of giving personal guarantees in business

April 15, 2011 - PRLog -- Because it is quite a common request, many business owners will sign a personal guarantee without a second thought. Alistair Millar, Partner at Tallents in Southwell, explains the consequences to business owners of not seeking legal advice before signing personal guarantees.

Says Alistair,

“A personal guarantee can have a very serious impact on a guarantor’s personal wealth and future security and should always be considered in conjunction with experienced legal advice.

“A personal guarantee is usually given for a set amount, plus interest, and is payable on demand to the bank should the company default on a loan agreement. A personal guarantee will allow a fledgling company to borrow money without additional charges on the business or its assets however, it also means that the bank can demand full payment from the guarantor in the event of any default.

“Should the guarantor be unable to repay the bank in full, a bankruptcy order can be made against the guarantor and they could be forced to sell their assets to repay the amount owed.”

Business owners who sign personal guarantees without legal advice, often do not realise that it is a ‘continuing security’, which means there is no agreed termination or end date to the guarantee. Alistair continues,

“The guarantor cannot terminate the guarantee unless they are in a position to repay the whole outstanding loan amount that the guarantee is set against. Additionally, in some cases, banks will not want the guarantee cancelled unless they have equal, or greater security from elsewhere. Without the bank’s written confirmation of the termination of the guarantee, the guarantor may continue to remain liable for the loan amount, even if it is paid off in full.”

Do not assume that signing personal guarantees as co-directors will equally spread the burden of the liability. In the event of default it is likely that the bank will pursue the director with the perceived greatest assets.

Alistair finishes,

“We always advise clients who are considering signing a personal guarantee to take legal advice first. Before they sign they must fully understand their total liabilities under the agreement and be comfortable with the consequences. An experienced solicitor will be able to limit the guarantor’s liability under the personal guarantee, or may be able to suggest alternative security for the loan.”

/ENDS

For more information, contact Tallents on 01636 671881


Tallents Solicitors, 3 Middlegate, Newark
http://www.tallents.co.uk


ABOUT TALLENTS

Established in 1774 and with offices in Newark, Mansfield and Southwell, Tallents Solicitors services the legal needs of private individuals, company and commercial clients and farmers in North Nottinghamshire and Lincolnshire.

We still offer a personal service to our clients and our size and structure ensures that partners are never remote from our clients. We provide a full range of legal services and our expertise covers all areas of law including:

Agricultural law, criminal law, commercial and domestic property transactions, inheritance tax planning, trust and estate administration, wills and probate, commercial and general litigation, employment law, company and commercial law, intellectual property, matrimonial and family law, personal injury claims and children issues.

In 2009, Tallents celebrated 235 years, having served more than nine generations of North Nottinghamshire and Lincolnshire people. This makes Tallents one of the oldest law firms in the county and possibly the UK.



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