Director’s Personal Guarantees – Beware

In many cases when lenders make an offer of finance it will come with the underwriting condition that a Director’s Personal Guarantee is required.  However some lenders use documents which are drafted on the basis of a “blanket” or “continuing” security basis which is not always fully explained to the customer.

We completed some finance for a customer recently who told me about his unfortunate experience.  He had previously dealt with one of the major finance houses and that he had given them almost all of his business for many years.  This was partly due to to the fact that they never asked him to sign any personal guarantees after the very first agreement they completed and that they were never requested again by the lender.  The fact that no personal guarantees were involved was very important to him. He was then very disappointed to discover years later when has borrowings were up to over £300k that on the very first agreement he had signed a “blanket” guarantee.

A blanket guarantee contains an “all monies” clause and also a “continuing security” clause.  These basically mean that the personal guarantee you are providing not only covers the present agreement but also all of those you may have completed in the past and also all of those you may complete in the future with that same lender and maybe even other parts of their group.

It is therefore very important when you sign a personal guarantee to check that it is specific to the agreement you are completing or alternatively be aware of the implications of “blanket” guarantees.

Keith Pallett, Managing Director.