As a business director you will sometimes find yourself thinking about what business finance options are best when you need to assure a business loan or another source of credit.
A lot of people decide on offering a PG. This puts you in a direct relationship with the lender, who has the security of knowing that the loan is safe in the event of your company becoming insolvent.
What are the risks?
It is definitely an option to consider, to obtain finance to expand the business if other finance options have been rejected.
It is important to be aware of the legal basics of the contractual agreement you are entering and the possibilities / repercussions on the PG being enforced. I would suggest that you think very carefully and even take legal advice before signing any PG documents.
By providing a PG to a third-party creditor, such as a bank or another business lender, you are agreeing to act as guarantor for the debt obligations of another party, for example you company. That means if your company defaults on a loan repayment, you have guaranteed that you will continue the repayments personally.
Your obligation is second to the first one between the borrower and the lender, so if your company does not have any repayments due then you cannot be found in a position of accountability.
Main points to consider – PG
Your PG may or may not be protected by a security, which could be a charge over your own home, and could possibly make it easier for a creditor to seek enforcement in the event of default.
Also, the PG should NOT be an indemnity – which is a primary obligation to pay additional costs to reflect a lender’s loss – and it is not contingent on the obligations of the borrower. When examining the detail of a contract that claims to be a guarantee, it is important to identify whether you will be acting as an indemnifier, a guarantor, or a mixture of the two.
Next Steps
If you want to find out anything further about this topic then please feel free to call me on 0330 236 9930, 0330 236 9938 or 07961 116321. All conversations will be in strict confidence. You can also email me vee@navigatebr.com
This article is for information and interest only. It is not a substitute for full professional advice, which will take in to account the specific and individual circumstances. Navigate Business Recovery Limited cannot accept any responsibility for any loss arising as a result of any person or organisation acting or refraining from acting on any information.
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