UK business owners seeking finance may be asked to provide a personal guarantee, making them personally responsible for repaying borrowing if their company cannot meet its obligations.
A personal guarantee is a legal commitment from a company director or business owner to repay outstanding finance if the business defaults. Lenders commonly request guarantees when a business has a limited trading history, few assets to offer as security or requires a significant amount of funding.
Personal guarantees can help businesses access finance that might otherwise be unavailable. They may also increase borrowing capacity or allow companies to secure funding without using additional business assets as security.
They are commonly associated with asset finance, invoice finance, asset-based lending and business loans.
However, signing a personal guarantee creates financial responsibility beyond the company itself. If the business cannot repay its borrowing, the lender may seek repayment from the individual who provided the guarantee, potentially putting personal assets at risk.
Business owners should understand whether the guarantee is capped or unlimited, when it can be enforced, whether other directors are also providing guarantees and which personal assets could be affected.
Personal guarantees remain a common feature of UK business lending and can help SMEs access funding for equipment, investment, cash flow and expansion. However, the potential personal liability should be considered carefully before signing.
Time Finance plc (LON:TIME) is an AIM-listed business specialising in the provision or arrangement of funding solutions to UK businesses seeking to access the finance they need to realise their growth plans. Time Finance can fund businesses or arrange funding with their trusted partners through Asset Finance, Invoice Finance, Business Loans, Vehicle Finance or Asset Based Lending.
