When you, as a business owner or director, sign a personal guarantee, you’re putting your personal assets on the line, including your home. If your business can no longer keep up with loan repayments, you, and potentially your family, could suffer as a result.

Hopefully you knew this before signing the personal guarantee. Our independent research suggested that only 39% of SME owners were aware that their personal assets were at risk if they took out a Personal Guarantee backed loan. Understanding these risks is not only essential for business owners, but also for the spouse or partner who may have co-signed the guarantee.

Can I get out of a personal guarantee?

• It is possible to get out of a personal guarantee. Find out your options for challenging personal guarantees to avoid the threat to your personal assets.

However, nothing in life is guaranteed. There are many unforeseen circumstances that can have adverse effects on your business and your bottom line, from market downturns and key customers going out of business to suppliers failing in their duty and illness or absence of a key individual within the company.

So, despite your best efforts, you could see the fortunes of your business head south and the personal guarantee be called in by your bank or finance provider. But, as a company director or owner, before you resign yourself to the prospect of losing some of your most-prized personal assets, here are your options for getting out of a personal guarantee:

• • • Check the personal guarantee agreement

    • There may be legal loopholes that will result in release from a personal guarantee. Check whether any changes have been made to the guarantee without your knowledge. If they have and they’re prejudicial to you, the document may be unenforceable.

      If all key facts were not disclosed at the time of signing the personal guarantee, there may be scope to negotiate out of it.

      If you believe you were subject to undue influence in signing the guarantee, you have the right to request an examination of the circumstances surrounding the signature. Read our recent article for more advice on personal guarantee law.

    • Be transparent with the lender

    • By being transparent with the lender at the first signs of, and throughout, any periods of trouble, you might be able to negotiate a manageable deal for debt payment.

      While this won’t release you from a personal guarantee, it may be possible to pay off the debt over a longer period of time using an Individual Voluntary Arrangement (IVA). An IVA can spread the cost over a number of years and even write some of the debt off. 

      An IVA is managed by an insolvency practitioner who collects the money on the creditor’s behalf.  While an IVA can help your business remain in existence, the downside of an IVA is that it will be hard to obtain any credit as your personal credit score will be very poor – so, it might only prove to be a temporary lifeline.

      It’s also highly likely you will need to raise money from any equity in your property in the last year or so of the IVA as a standard contribution to the IVA.

    • Declare yourself bankrupt

    • Going bankrupt should never be a decision that you take lightly as it comes with all sorts of financial implications, as we explained in a previous article.

      However, when you go bankrupt, your liability for all debts is discharged, meaning that it can be a way to get out of a personal guarantee. But it must be stressed this is only for personal bankruptcy. Businesses that become insolvent via liquidation or administration do not eliminate personal guarantees.

    • Take out personal guarantee insurance

    • Your best option for getting out of a personal guarantee is to have preemptively taken out personal guarantee insurance when securing finance or a loan for your company.

      With personal guarantee insurance, you can cover up 80% of your risk, so you’re personally protected as you plan the future funding and growth of your business. For more information on what personal guarantee insurance entails, speak to a risk management insurance company today on 0208 004 7250.