Business owners cautioned over new 'personal guarantee' recovery loan scheme

A personal guarantee gives the lender a written promise, made by a director or number of directors, to accept liability for a company’s debt. This means that if the business defaults on a loan, the director’s home, car and anything in their personal bank account could be used to settle the outstanding debt. If they co-own their home, with a spouse or partner – they will also have to sign the guarantee.

If the personal assets aren’t sufficient to cover the debt, the business owner could find themselves facing bankruptcy which would have long term ramifications and stop them from being a company director in the future.

Todd Davison said: “A successor to the Recovery Loan Scheme has been on the cards for some time and given the low take up of the RLS due to the strict qualifying criteria, we hoped a new scheme would be more accessible.

“It seems accessibility could come at a cost in the form of a personal guarantee requirement. Our fear is that business owners will commit to accepting liability for their company’s debt at a time when they are already dealing with rising energy costs, labour shortages, late payment and on-going supply chain issues that contrive to make cashflow predictions very difficult.

“We hope that when this new scheme is formally announced, the Government makes abundantly clear both the risks of signing a personal guarantee for a business loan and how to mitigate them. It’s vital business owners appreciate the personal stake they are taking in their business by signing a personal guarantee.”