What’s does it mean to be a personal guarantor on a business loan?
Mr Bankruptcy
30th June 2022
What does it mean to a business owner or director to become a personal guarantor on a business loan? What are the advantages and disadvantages and what might the consequences be in the current economic climate?
A personal guarantee
A personal guarantee is a legally binding legal agreement between a business owner and a lender. It is a form of security offered to the lender.
A personal guarantor is the person who signs the agreement to say they take responsibility and are liable for paying back a loan if the business can no longer make payments. The guarantee is usually signed during the loan application process.
Who can be a guarantor?
Almost anyone can be a guarantor, and this very much depends on the agreement. Individual lenders will have their own criteria, their position within the business requesting a loan (they are usually a director or partner of the business), a lower age limit, or the assets they own; for example, whether they are a homeowner. The lender will also be interested in the guarantor’s credit history.
The terms
Before signing a guarantee agreement, it’s necessary to understand its contractual terms, which can vary widely depending on the consequences and the parties involved.
A guarantee can clearly refer to a particular loan only and the lender can’t make a claim against the guarantor for any other loan facility provided by the lender.
However, if the guarantee refers to “all monies” given by the lender to the borrower at any time, then the guarantor is liable for a failure to repay any loan made by the lender.
The consequences
There are many good reasons for a company director or business owner to become a personal guarantor. It can be a way for SMEs to unlock the door to a critical business loan or a line of credit by offering extra security.
However, the guarantor is assuming that the lender won’t have cause to call in their loan in a way that affects their personal, or family, assets. For this reason, it’s important, before entering into a guarantee agreement, to consider the implications for them and their family, very carefully.
While a personal guarantor doesn’t expect the worst to happen, in the current economic climate, it can’t be ruled out. If payments on a loan are not kept up, the personal guarantor is expected to use their personal funds to make up the payments.
A creditor may be able to seize their assets, including their family home, personal savings, assets held jointly, as payment, with severe effects on the financial state of the guarantor.
However, should the worst happen, there’s always room for negotiation, although it’s not likely to be easy and it depends on the stance of the lender.
Debt problems are never improved by delaying action or keeping them to yourself. Early, honest communication, with the support of a professional debt mediator, can make all the difference in coming to an acceptable agreement for all sides.
Talk to James Rosa Associates
James Rosa associates is a firm of debt advisors and debt adjustors. With a supportive and friendly approach, we offer a full range of advice and professional services to individuals and business owners/directors who face unmanageable debt or who are involved in civil or commercial disputes. Our services include:
- Mediation
- Insolvency support
- Negotiated settlements
- Personal assisted bankruptcy
We are authorised and regulated by the Financial Conduct Authority (FRN665061) to work with clients to produce bespoke solutions to fit their specific circumstances.
Find out if you qualify for a free consultation
If you want to deal with an unmanageable debt, or bring a dispute to a swift and cost-effective resolution, contact James Rosa Associates, ring 0845 6807217 or email enquiries@jamesrosa.co.uk to find out whether you qualify for a free consultation.
Trouble paying back your Bounce Back Loan?
Mr Bankruptcy
23rd June 2022
Once seen as a lifeline for many businesses, a Bounce Back Loan may now feel more like a heavy burden if you are struggling to repay one. If that’s the case, what might your options be. And what happens if the Bounce Back Loan isn’t the only debt you can’t repay?
What are Bounce Back loans?
Bounce Back Loans were introduced in March 2020 as a response to the impact the Covid-19 pandemic was having on business. To help businesses to survive through these challenging times the Bounce Back Loan allowed them to borrow up to £50k, to be paid back monthly but with no repayment for the first 12 months.
Directors of limited companies could take out these loans without needing to act as personal guarantor because the government would take on the risk and repay loans if businesses became insolvent, so long as the loan had been used in accordance with the terms of the loan.
What happens if a business can’t repay its Bounce Back Loan?
Although many businesses took out Bounce Back Loans in good faith, no one knew how long lockdown would last or, when restrictions were eventually lifted, that there would be a gradual return to “normal”. Trade was slow to regain momentum and bounce back for many businesses.
As a result, some businesses are now struggling to repay their loans. In this situation, there are a couple of options provided by the Pay as Your Grow scheme, specifically introduced to help with this problem. It allows business to:
- Delay the start of repayments for up to six 6 months,
- Lengthen the term of the Bounce Back Loans from six years to ten,
- Make interest-only repayments for 6 months.
These are good options when it’s only the Bounce Back Loan causing financial stress, but the reality for many companies is that they have other loans and debts which now hang like a weight around their necks.
Is your business struggling with more than a Bounce Back Loan?
In reality, many businesses are struggling to repay more than just the Bounce Back Loan as they work hard to get back onto a stronger financial footing and in the face of emerging economic challenges, including continuing rising costs.
Options
If this is the case for your business, you need to consider more options than the Pay as You Grow Scheme. It may be time to consider alternative formal or informal debt restructuring options such as a Company Voluntary Arrangement (CVA) to renegotiate loan repayments. If you own money to HMRC, a Time To Pay arrangement could be another option.
If the long-term viability of your business is in doubt, it may be necessary to commence formal liquidation proceedings, in which case your Bounce Back Loan will be treated the same as any other debt.
Is it time to ask for help?
If you need support managing your business debts and want to understand the options available to you, don’t leave it too late, letting debt concerns begin to affect your physical and mental wellbeing as well. There may be more options available to you than you realise, and this isn’t a problem you need to face alone.
James Rosa Associates
James Rosa associates is a firm of debt advisors and debt adjustors. With a supportive and friendly approach, we offer a full range of advice and professional services to individuals and business owners/directors facing unmanageable debt or who are involved in civil or commercial disputes. Our services include:
We are authorised and regulated by the Financial Conduct Authority (FRN665061) to work with clients to produce bespoke solutions to fit their specific circumstances.
Find out if you qualify for a free consultation
If you want to deal with an unmanageable debt, or bring a dispute to a swift and cost-effective resolution, contact James Rosa Associates, ring 0845 6807217 or email enquiries@jamesrosa.co.uk to find out whether you qualify for a free consultation.
How can businesses prepare for a recession?
Mr Bankruptcy
9th June 2022
As the UK and global economies continue to struggle, businesses have to look for ways to survive these challenging times. Following forecasts from the Bank of England, should this include preparing for a recession?
Is recession on its way?
Inflation has now reached a 40-year high, at 9% and things are predicted to get worse during 2022. This led the Bank of England raising the prospect of the UK going into recession towards the end of this year.
With many people forecasting that more harder times lie ahead, now is the time for businesses to look at how they can protect themselves from the worst effects.
Actions you can take
Businesses need to determine their ability to weather an economic decline. Understanding your liabilities and key areas of business risk early on can help you to protect those areas of weakness, or at least to identify the point when more direct action is needed.
These steps that can help mitigate the impact of a potential recession:
- Build relationships. Maintaining good communications with customers, partners and suppliers is important because the way they continue working with you could make all the difference.
- Build new sources of revenue. Avoid becoming reliant upon a couple of key customers to supply your income as your fate will be more tied to theirs than it should be. It is also beneficial to find opportunities to diversify products or services so that if one is a flop, the others continue to provide an income.
- Manage cash flow. Review your expenses and outgoings, build a reserve and managing customer debts to protect your cash flow and cope with inflation-driven rises in costs.
- Regularly review your finances. Be aware of your financial position, review it regularly and track changes. This will help you to plan for the future and give you a realistic overview of your financial situation.
- Keep on marketing. You may need to review your marketing channels or change your approach, but it’s important to continue tapping into new markets and re-invigorate existing ones to maintain a strong customer base.
With UK company insolvencies increasing by 39% in March alone, many businesses are struggling already and we should all be preparing for more challenges ahead.
James Rosa Associates
James Rosa associates is a firm of debt advisors and debt adjustors. With a supportive and friendly approach, we offer a full range of advice and professional services to individuals and business owners/directors who face unmanageable debt or who are involved in civil or commercial disputes. Our services include:
We are authorised and regulated by the Financial Conduct Authority (FRN665061) to work with clients to produce bespoke solutions to fit their specific circumstances.
Find out if you qualify for a free consultation
If you are worried about the future, you want to deal with an unmanageable debt or bring a dispute to a swift and cost-effective resolution, contact James Rosa Associates, ring 0845 6807217 or email enquiries@jamesrosa.co.uk to find out whether you qualify for a free consultation.