A personal guarantee is a legally binding promise where an individual, typically a director or shareholder, agrees to repay a company's debts using their personal assets if the company defaults on its obligations.
A personal guarantee is a legal commitment where you, often as a director or shareholder, promise to repay a company's debt using your own assets if the company cannot. Banks require this from startups lacking collateral or credit history, making it common for small business loans or overdrafts.
When you sign a personal guarantee, your home, savings, and other personal wealth become accessible to creditors in case of default. This unlimited liability contrasts with your company's limited status, piercing the corporate veil to hold you accountable. In Ireland, these guarantees are enforceable under contract law, with courts upholding them strictly.
Personal guarantees bridge the risk gap for lenders whilst enabling founders to access vital funding. However, they demand careful consideration, as business failure can lead to personal bankruptcy. Always seek legal advice before signing, especially regarding joint guarantees with co-directors.
A personal guarantee activates when your company breaches loan terms, such as missing repayments. The lender first pursues company assets, then turns to you personally. You receive formal demand letters, followed by potential court proceedings if unpaid.
Guarantees often include 'all monies' clauses, covering current and future debts, not just the specific loan. Continuing guarantees remain active until explicitly released by the lender, even after the original debt is cleared. Review terms closely to understand triggers and scope.
The primary risk is personal financial ruin. If your company fails, creditors can seize your home, force asset sales, or pursue bankruptcy proceedings against you. This exposure lasts until the guarantee expires or is released, potentially for years.
Joint guarantees mean co-signers share liability, complicating personal relationships if one defaults. Divorce or inheritance issues can also entangle guarantees, as they bind your estate. Many founders regret signing without limits, facing demands long after business closure.
In Ireland, personal guarantees impact your credit rating independently of the company. Defaults appear on your personal record, hindering future borrowing for homes or cars. This long-term consequence underscores the gravity of providing such security.
Banks demand personal guarantees from new companies without assets, revenue history, or collateral. Startups seeking overdrafts, equipment finance, or working capital often face this requirement, as lenders mitigate default risk.
Established firms might avoid guarantees through strong financial statements, but growing SMEs still encounter them during expansion. Alternatives like equity financing bypass guarantees by selling shares instead of borrowing.
Yes, negotiate fixed limits, durations, or exclude home equity via 'non-possessory' clauses. However, banks resist restrictions, preferring unlimited coverage. Deeds of guarantee allow caps, but legal drafting is essential to enforce them.
Some opt for limited guarantees covering specific sums, whilst others use security like shares instead. Always document agreements clearly to avoid disputes during enforcement.
Repayment does not automatically end the guarantee unless specified. Continuing guarantees persist for future debts. Request written release upon full repayment to protect against revival claims.
A personal guarantee relies on your promise, whilst a debenture creates a fixed charge over company assets. Guarantees expose personal wealth post-company liquidation, whereas debentures prioritise secured claims on business property.
