Before pledging your own income and assets to help a business secure a loan, it’s important to consider the potential drawbacks of signing a director guarantee. To help, we’ve put together six of the most important elements of the arrangement.
Your Personal Assets
If you opt for a secured director guarantee, this means you’re putting forth collateral – or personal assets – to cover any debts of the company. Surprisingly, over a third of people were unaware of this risk when signing up for these loans.
For this reason, it is absolutely vital to seek expert advice on your money and assets before entering into a director guarantee and to have the document drawn up by a legal professional.
Other Signees
Before putting forth a shared property as collateral, you’ll also need whoever shares this ownership to sign off on the arrangement – be it a spouse, friend, or family member. This is important, as risking shared assets without the other parties’ notice can result in all sorts of complications.
Additional Costs
Debts nearly always come with additional costs, and it’s important to be vigilant of the small print in these agreements. You must assess whether you can reliably repay these debts out of your own pocket, should the company fail to do so.
Liable After Leaving
Even if you’ve left a business, the agreement does not always go with you. You can request for your name to be released alongside your absence but will need to propose another guarantor in your place. The last thing you want to do is bail out a company that provides no income for you.
Insolvency is not invincibility
You can still cover your risks
Director guarantee insurance is available and can help protect you from any burdensome debts you may incur. This can be a huge relief when trying to grow your business, allowing for easier transactions without worrying so much about your repayments.
