Of all the financial tools available to business owners, shareholders, founders, directors or any other authoritative figures which are central to the functioning of an enterprising organisation, a Personal Guarantee is perhaps the least understood, albeit it is indeed recognised as one of the best solutions to solve the specific problem of securing access to capital-based cash flow. Of course this capital-based cash flow doesn’t necessarily always occur in the form of cold, hard cash or credit, because it isn’t only lenders such as banks who can request for a Personal Guarantee to be attached to the effective issuing of debt.
You can have a supplier proceeding to supply goods such as raw materials or wholesale products as the credit extended, for which a Personal Guarantee is drawn up to protect the lender/supplier in case the business they are extending that credit to becomes unable to honour its debt repayment. Basically the director agrees to be personally liable to honour those payments in such an event.
Now as touched-on, in a world where it can prove to be difficult to acquire the capital needed for key business cogs such as supplies, supplier or lender credit extensions to which a Personal Guarantee is tied make for a great way to ensure the continued operation of that business which requires that capital, in whatever form. The burning question, however, is since PGs can conveniently be arranged and even signed off on online, how do you go about protecting yourself as the director who is effectively accepting personal liability in the event that the company you’re representing becomes unable to pay back the debt?
Make sure you understand the risks
First and foremost is perhaps the unwritten law of the necessary self-preservation which will have you ensuring that you fully understand all the implications involved, including the risks. It is indeed possible that the organisation becomes unable to service its debt, in which case are you able to take the hit to your personal finances, as per the fundamentals of a PG?
Make sure it’s the best solution for you
As far as it goes with any consideration of a Personal Guarantee personal guarantees by directors are the most common avenue through which to proceed, but there are different ways through which a director’s (or directors’) PG(s) can be structured. Put simply, if you have both options available to you then you’re in a more favourable position, because then you can choose which is best between allocating the liability to one director or effectively splitting it across more than one of the directors involved in the business.
Get protection via PG Insurance
Personal Guarantee Insurance coverage is another avenue to pursue in order to protect yourself in the event that you are eager to go ahead and sign online or through any other channel, because then at least you can limit the liability by getting an insurance service provider involved. It won’t completely exempt you from liability, but I suppose if you’re at the stage where you’re researching on protecting yourself when signing a PG online, that’s something you’re already aware of.