It has become increasingly common for lenders to require business owners (particularly owners of small and medium-sized businesses) to provide personal guarantees as part of any financial backing. Whilst this is not a new concept, it is something that business owners need to consider when entering into financial transactions and they will often need to seek independent legal advice as a requirement of the lender.
Our Personal Guarantee Experience
A personal guarantee requires the guarantor to pledge their personal assets against the obligations of the borrower. If the borrower fails to repay the loan on time or breaches any other term of the loan agreement, the lender can seize the personal assets pledged by the guarantor as security for the outstanding debts. Guarantees are usually given by the directors of a company or partners in a firm as they are the officers in control of the day-to-day running of the business, although lenders may sometimes require other individuals to provide guarantees too.
When obtaining bank finance involving security by way of a personal guarantee, lenders will typically require any guarantor to take independent legal advice on the implications and risks of entering into that guarantee and the solicitor providing that advice will usually need to provide a certificate confirming the appropriate advice has been given. Our experienced business law solicitors are able to offer independent legal advice on personal guarantees which is simple and easy to understand, at a competitive price.
It will depend on the wording of the guarantee itself but, generally, a personal guarantee will not automatically be released on full repayment of the outstanding balance. Instead, you will need to ask the lender to provide a deed of release, which will be signed by the lender and to formally release you from the guarantee. This is particularly important as most guarantees are “all monies” guarantees and cover future borrowing obligations.
Personal guarantees are usually worded in such a way that they are binding on your successors, meaning that it will be for your personal representatives to deal with any personal guarantees as part of your estate. It is therefore important that you retain copies of any personal guarantee you enter into, which have not been released, and to let your personal representatives and/or family members know of their existence.
It is unlikely that your personal guarantees will automatically be released on the sale of any shares in a company or, indeed, your resignation as a director of that company. As such, it is important to discuss any personal guarantees with one of our business law solicitors as part of any sale of shares or other merger and acquisition transaction so that we can assist you with obtaining a release from your obligations.
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