Director's Guarantee Insurance

Can I guarantee a finance agreement for my company?

A question we are often asked is whether an individual – usually a company director – can guarantee a loan for the business.

This is usually asked when a business is quite new, or if lenders have reason to question the financial security of a loan. If a company has patchy financial history, or no history of credit, it’s difficult for a lender to know whether their investment will be repaid – and there are some instances where the business doesn’t have a strong enough financial reputation for a loan, leasing or credit contracts.

The answer is yes – you can do so – but we recommend that you insure yourself when you do so.

Let’s look at the process;

What is a director’s guarantee?

In this instance, a director can guarantee a loan. This means that they sign as personally responsible for repaying the loan; if the business can’t repay the funds, the director agrees to do so.

This gives added security to lenders, who are more likely to agree to lending finance when they are certain they will be able to reclaim the funds. This could be as financial repayment from the director, or by way of claiming assets (property, savings, investments) owned by the director.

I’m nervous about putting my personal finances on the line

Well – yes – and it’s sensible to be cautious.

Of course you don’t go into business thinking it could fail – and any financial agreements you enter into are done in good faith, fully intending to repay loans and to be successful in your business endeavours.

However, we all know that there are times when something outside of out control sees businesses fail or fold, and if you have signed a director’s guarantee for the loans that business took out, you are now personally liable for them – meaning that your assets, even your home, might be at risk.

Director’s guarantee insurance

We always, always advise that – when signing director’s guarantees – you take insurance for the agreement. Yes, this may mean you pay a slightly higher rate on the loan – but it protects your personal assets from those out-of-your-control situations which could crop up, and means that you won’t lose everything if your business venture doesn’t go to plan.

Director’s guarantee insurance covers your risks, protecting your family from the worst-case-scenario, and giving you peace of mind.

It also reassures the lender that you are taking the financial responsibility seriously – and further protecting their investment, as well as your own.

To find out more about director’s guarantees – and how to insure them – call our team today, and let’s open your business up to a bolder future with investing in your growth.