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Is the economic future really as dire as people make out? 

In January 2018, the Financial Conduct Authority ("FCA") opened a consultation on the role of the Financial Ombudsman Service (“FOS”) and whether its services should be extended to incorporate more SMEs and personal guarantors.

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:

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?  

When considering your business finance options as a company Director, you might be asked to provide a personal guarantee as an assurance for a business loan or another source of financing on credit. This puts you into a direct relationship with the lender, who could legitimately pursue you personally if your company becomes insolvent. But is this a risk that you think is worth taking?

Most small business owners would prefer not to sign a personal guarantee, but when it makes the difference between securing finance and having the door shut in your face what’s a small business owner to do?

If signing the guarantee is the only route to finance, the first priority for any savvy small business owner is a thorough check on what they’re potentially getting into.  Even a thriving business can go through uncertain times and if things do go wrong, that guarantee could mean loss of personal assets including home, possible bankruptcy, tarnished credit rating and damaged future career, not to mention a severe strain on family relationships.

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.

After building a business over many years it could just take six weeks to lose the lot if you have signed a Personal Guarantee.

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.