PGI Knowledge Centre

International accounting standards suggest that business accounts should record guarantees based on the following conditions:

• Guarantees are treated as provisions if a call is likely (typically numerous similar guarantees treated as a group)

• Guarantees are treated as a contingent liability and not recorded in main accounts if a call is not likely (typically one-off guarantees)

But what about personal financial statements?

The FCA's July discussion paper invites us to share our opinion on the ‘duty of care’ we owe our clients. Its asks for interested parties to consider:

Isn’t that a comforting phrase?  We often use it when we are in the midst of troubling times or perhaps to explain some news that wasn’t quite what we were hoping for.  I have heard many students this week use the phrase, it seems to put disappointing exam results in a context that is somehow part of some bigger picture ... 

It’s not just students who use this phrase to excuse ‘today’ as if whatever has just happened is an important part of some bigger plan.  It’s used if we want to try and comfort someone trying to cope with a problem or to excuse a position we wish we hadn’t got ourselves into.

As a company Director one benefit of your company’s limited liability status is that your personal assets are normally protected from any claim the company creditors may have against the company.  This protection does not exist for sole traders or partnerships. 

Your personal assets are yours and the company creditors have no claim against you, just the company.

So why would you ever give up that protection?  

What is a personal guarantee and do lenders actually call them in?

A personal guarantee is a contract between a creditor, usually a lender, and an individual, normally a director or shareholder of a company.

Stealing probably isn't the best option but when seeking funding for your business, be sure that no one steals from you.  Get the best deal for your business by knowing what you want and what is available.

Running you own business can be intensely satisfying, rewarding and frustrating at the same time.  What I want as a director/owner is to be able to take advantage of opportunities as they arise.  Opportunities wear many masks and require different tools to unlock their potential.  I have probably been in the same position as you will have been.  I know I am likely to be in the same positions again. 

What is a Directors' Personal Guarantee?

Director’s personal guarantees are a measure of security used by lenders to protect themselves when providing business finance. When directors seek funding for their business and sign a ‘personal guarantee’, it is a legally binding waiver that bypasses the limited liability status of a limited company during debt recovery. What this means is that should the business default on the finance terms, the personal guarantee will entitle the lender to recover any amount owing from the directors’ personal estate.