Does a director have to be a guarantor?

One of the questions that directors typically have when considering a directorship is whether they will be forced to take on a financial guarantee liability as part of their role. In this blog, we’ll investigate the rules and look at what a personal director guarantee is.

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What is a director guarantee?

A director guarantee occurs when a company takes out finance with a lender, and the security offered against that loan is provided by an individual director. The director guarantee is needed because in this instance the company doesn’t have enough assets to cover the security needed for a loan to be offered. Find out more at:

Does a director have to take out a director guarantee?

Often shareholders and directors have more than one role. But this means that no individual can be forced to take out a personal guarantee against a business loan. Those who do should always take legal advice on the implications of this move and what it means for their personal position. Even leaving a directorship doesn’t mean that a director guarantee is dissolved so the risks can be significant.

What should a director consider before taking out a director guarantee?

It’s always worth seeking legal advice before securing the finances of a business, which can fail. After all, the objective of the business is to financially succeed, not to safeguard the personal financial status of a director. This is an area which sees a great deal of litigation through courts every year, where directors are being pursued for failed loans and at the risk of bankruptcy.

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A solicitor can offer advice on the detailed provisions of a director guarantee and help a director to decide whether or not this type of lending arrangement is wise in the circumstances.

Author: Brielle Walker

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