When you’re seeking finance for your limited company, personal guarantees can be difficult to avoid.
Banks and other lenders often insist on a personal guarantee. And if your limited company gets into financial difficulty, you will be personally liable for the sum that you have guaranteed.
If called upon, there isn’t much that you can do to avoid paying some or all of your personal guarantee. But you do have some options if you work with a personal and business debt specialist like Umbrella Insolvency.
How personal guarantees are called upon
How creditors call upon personal guarantees can vary according to the creditor and the amount of debt. The most common routes are through a statutory demand or a county court or high court Judgement.
If a creditor issues a statutory demand, you will have 21 days to settle the debt. If you can’t pay after the 21 days, the creditor can start bankruptcy proceedings against you.
If a creditor applies for a county court or high court judgement, this will usually be followed by a warrant of execution – meaning bailiff action – or a charging order, where a creditor usually tries to secure a debt against your home.
There are some things that you can do to limit your personal exposure to business debt. You have options before you take out business credit and when a creditor takes action against you.
Before you take out credit
If you have a sound business plan and your company looks in good financial shape then you may be able to negotiate favourable terms with a lender when agreeing business finance.
It’s unlikely that you’ll persuade the bank to drop their personal guarantee completely, but you may be able to negotiate some concessions. For example, you may be able to stop a bank taking legal charge over your home.
If your business looks like a relatively risk-free bet, you may also be able to secure a cheap personal guarantee insurance policy. The price of your policy will ultimately be decided by cash flow forecasts, your previous history and the industry your business is in among other things.
Always seek legal or professional advice before you sign a personal guarantee. You should make sure you fully understand the document and the full ramifications of your company not being able to pay its debt.
When a creditor takes action
When a creditor takes action against you, your first step should be to seek professional advice. This helps ensure that all of your future actions are legal and in your best interests.
In most cases, the best course of action will be to try and negotiate a settlement with the creditor.
Legal processes can be drawn out and costly, so most creditors are often willing to agree to a settlement as long as you can prove that it makes commercial sense. An insolvency expert will be able to offer guidance on how you can do this.
If you cannot reach a settlement with the creditor, then you may be left with no option but to pursue a ‘last resort’ insolvency solution like bankruptcy.
Headed up by an experienced insolvency practitioner, Tom Fox, Umbrella Insolvency specialises in corporate and personal insolvency.
We can offer advice on the full range of options that are available at every stage of the insolvency process. Speak to a member of the team today to arrange a consultation. Call: 0800 611 8888.