If you are asked to provide a personal guarantee you are promising to ensure that someone else (or a company or partnership) fulfils their obligations under a particular contract or loan. It will also include a promise, that if that party does not fulfil its obligations, then you will step in and meet those requirements or pay the money instead.
They are used in order to ensure that the party entering into the original contract or loan is committed to being able to meet their obligations under that agreement, and if the obligations are not met, the guarantee can be relied upon in order to ensure that someone else meets those obligations on their behalf.
Banks or lenders frequently use personal guarantees. For example, when money is loaned to a company they may ask a director to personally promise (guarantee) that in the event that the company does not repay the loan, the director will use their own personal funds to repay the money instead.
Companies may use a personal guarantee when a contract to supply goods or services is entered into. The company may ask for a guarantee to promise that in the event that the goods or services are not provided then the person who provides the guarantee will pay the company money to cover any losses they suffer as a result.
If you are a business who relies on suppliers of goods or services or if you or your business are lending money then a personal guarantee may be helpful in ensuring that the other party carries out what they agree to do, or if not someone else does on their behalf.
You must carefully consider what may be at stake if the guarantee you give is relied upon, for example the personal guarantee may oblige you to sell your house to repay a loan, so they are not to be entered into lightly.
We can help in preparing a personal guarantee for you to use in your business, or can review and advise you upon the terms of a personal guarantee you are asked to give.
Please contact us for further information.