Online Business Loans to Grow your Company

Did you know that one of the greatest demographic shifts in the UK in the last twenty years has been the move to self-employment? According to the BBC, 3.3 million people were self-employed in 2001 and that rose to 4.8 million people in 2017. The number of side hustlers (source: Wonolo) is growing too, adding £14.4bn to the economy and supporting an astonishing 600,000 full-time UK jobs (source: Business Advice). There are now 16 million people with additional sources of income in Britain today (source: London Loves Business).

That’s all very promising but getting finance to launch and to grow your business can be a challenge. And the biggest challenge in front of entrepreneurs is the personal or director’s guarantee if your business is a limited company.

BestShortTermLoans supports the growth of British business, so we’re doing things differently. In this article, we’ll look at:

• What director’s/personal guarantees are
• Who asks you to risk everything
• Whether director’s/personal guarantees are really essential
• What happens when a director’s/personal guarantee is called in
• How hard it is to negotiate a director’s/personal guarantees to suit you
• Short-term business loans for bad credit applicants running limited companies
• Short-term business loans for bad credit applicants who run sole traders or partnerships
• Get help from an experienced business loan broker who does not require director’s/personal guarantees to lend you money

Before you think about taking a business loan from any other provider, please do spend a minute or two reading about director’s/personal guarantees so that you’re in full receipt of the facts.

Dangers of personal guarantees on business loans

When someone sets themselves up as a limited company, one of the main attractions behind doing so is the concept of limited liability. In other words, if it doesn’t work out, it’s the company that will owe the debts and not the director personally.

If you are a sole trader or in a partnership, you’re liable personally for everything. If you make a big mistake, you cost a client a lot of money and you have no professional indemnity insurance, your client can come straight to you for recompense and all the costs associated with that. If you take out loans, leases, or even rent commercial property and default as a sole trader, your debtor will look to you to pay everything owed.

As a limited company, you’re protected from all that. Or are you?

A limited company looking to grow their business through a loan or purchase new machinery, plant, or hardware will find lots of eager companies willing to lend them whatever they need. But nearly all of them make it a condition of offer and payment that you and any other directors in the business sign a director’s guarantee, sometimes called a personal guarantee.

What are personal guarantees?

Director’s guarantees make you and your fellow directors personally liable for paying off all outstanding debts owed by your company in the event that it can’t pay the debt off. Your company doesn’t even need to be insolvent to trigger a guarantee – you could have breached a covenant in the agreement.

Director’s guarantees can either be secured on property or unsecured. When a guarantee is secured, the security offered is normally a director’s home or other valuable assets, like an investment property.

Business loans are often advertised as having a director’s guarantee that has no security requirements. That means that your home is not at risk – theoretically. If your company does default, your home still may very well be on the line but we’ll come to that later in this article.

When are they asked for?

Your bank or finance company will ask you to sign a director’s guarantee for any finance application you take out. That’s not just cash-based loans in the traditional sense. It also includes invoice factoring companies, asset leasing companies, and even trade suppliers.

It’s not that common any more but do not be surprised if a commercial landlord makes it a condition of lease out their property to you with a director’s guarantee.

Are director’s guarantees essential?

No. No one is going to force you to sign your life and home away. Remember, you’re in charge here. They might have what you want but you have something they want too.

If during a lease negotiation, a landlord suddenly demands that you sign a director’s guarantee, you’re absolutely free to walk away and look for another office or work unit. There are plenty of them empty and plenty of other landlords sitting on monthly losses because their workspace is empty. They’ll be happy to hear from you.

If an invoice factorer is demanding you to sign over your accounts receivables for the next three years, trying to commit you to a minimum level of business, and they want you to sign a director’s guarantee, again you can just walk away.

There are plenty of invoices factorer out there who don’t need a personal guarantee, don’t need a minimum level of spending, and are quite happy to fund your invoices on an ad-hoc arrangement.

You’re not forced to do anything. The only hurdle you have is that you will have a smaller pool of finance suppliers to choose from if you’re insistent that you don’t want to sign a director’s guarantee.

The only marketplace where the requirement to take a director’s guarantee out is almost universal is for cash-based finance. But even that‘s starting to change now.

When are director’s loans called in?

Definitely, if your company goes into liquidation, receivership, and sometimes a Company Voluntary Arrangement (CVA). You’re almost guaranteed to be asked by the lender to make good on the debt personally then.

Many loan and finance agreements have covenants in them. They are special terms and conditions that, if broken, mean that the finance company will consider you in breach and activate the director’s guarantee. An example of a breach could be the awarding of a County Court Judgement (CCJ) against your company, which it does not satisfy within the statutory time period.

Remember that everything, including trigger points, is up for negotiation and it’s negotiation we’ll be covering later in this article.

Multiple directors’ guarantees

If more than one person holds shares in your business, it is almost certain that someone requiring a personal guarantee will want personal guarantees from all of the shareholders.

Written into the contract will be a liability for the proportionate share of the debt based upon the percentage of shares an individual director holds within a company.

However, the sting in the tail is,that even despite this clause, the personal guarantees will be written as joint and several. If there are four of you, the guarantees are called in, and your three fellow directors suddenly decide to move to Panama, it’ll be you the finance company comes after and only you.

The director’s guarantee has been called in – what happens then?

You will probably get a letter of demand for the whole payment and a very short time frame in which to pay it. The letter will be full of threats against you and everything you own, including the equity in your home or other assets.

There may be a conciliatory paragraph or two in there where the company calling in the guarantee wants to see if there is a mutually agreeable way to pay the money back can be found. However, your idea of what is possible and their idea of what is possible will diverge greatly.

At some point, normally within a month, they will start bankruptcy proceedings against you or attempt to attach a County Court Judgement or High Court Judgement to you.

They will look at your personal circumstances. If there is enough equity in your home, they will attempt to secure a charging order after they have won a county court or high court judgement. If they do secure a charging order, they will then apply for an order of sale which means that the court is ordering you to sell your property.

We wish we could say to you that there’s a nice ending to this, but there isn’t.

Negotiating your director’s guarantee

Try to secure every single concession and advantage you can during negotiation. Earlier in this article, we mentioned that you have something they want. What you have that they want is a new client they can make money off. For a landlord with a lot of empty property, a finance company with monthly targets, or a plant and machinery company with tens of millions of pounds of equipment sitting around their warehouse costing them money, you are very attractive.

You can:

• try to settle on a specific sum of money that you will cover with your own director’s guarantee rather than accepting the joint and several clauses

• make the lender liquidate all the business’s assets to recover money that way first and then come after you for the remainder

• ask them to bill you for the amount that is still owing less whatever the company can sell the asset for, providing you with proof of the price of the sale

• protect yourself from legal and court costs by insisting on the contract that you will not be liable for their fees

• ask the loan to be secured against a debenture (a debenture would give lender the right of ownership of all your limited company’s assets)

PLEASE take independent legal advice before you sign anything. This article does not constitute advice and we cannot be held liable nor responsible for anyone taking (or not taking) action based upon this article’s contents.

Can I defend myself legally when a director’s guarantee is activated?

It depends. There are three ways that we would suggest. All of them cost money and they are not guaranteed to be successful.

Insurance companies are offering director’s guarantee insurance out there and can be found via internet search engines like Google.

Second, when two £1,000-an-hour barristers go into the Supreme Court to argue a case, one of them is always going to lose. Anyone trying to enforce a director’s guarantee on you will have secret fears that some or all of their most punitive provisions are unenforceable in law, no matter how much they spent on getting the contract drawn up. A strongly-worded solicitors letter from a local firm specialising in business law might force the company putting pressure on you to negotiate.

Finally, try to involve a mediator. If your company can’t pay its loan back, then the finance company is interested in what they can realistically achieve in terms of the amount of money they can recover. A mediator may help to reign back some of the more aggressive tactics of your creditor.

The best bet of all is to make sure that you don’t agree to anything requiring a director’s/personal guarantee. And we can help you with this.

Short-term business loans for bad credit applicants running limited companies

BestShortTermLoans provide personal loans to company directors which you can then pay into your business bank account. When the business repays you, those repayments will not incur a tax of any kind because HMRC will not consider them as income.

BestShortTermLoans does not require a director’s/personal guarantee to borrow money from our panel of lenders – you also don’t need to offer any collateral or present a guarantor who will pay your loan off if you can’t.

Short-term business loans for bad credit applicants who run sole traders or partnerships

BestShortTermLoans also provides a competitive loan service to sole traders and partnerships. Loans to sole traders and partnerships do not require a director’s/personal guarantee because you (and your partner) will be liable to pay the loan back.

Find the right business loan for you today

BestShortTermLoans is the friend of British business and we’re here to help. BestShortTermLoans is not a lender – we’re a broker. We work with a very large selection of lenders happy to work with applicants who are directors of limited companies, sole traders, or partners in an unincorporated business. For our applicants who are directors of limited companies, we don’t ask for the types of personal or director guarantees that most of our competitors require.

To apply for a business loan, please use one of the links below. Our team are experienced business loan negotiators and we look forward to being a small part in growing your business.

If you’re a director of a limited company, please click here. If you are a sole trader or a partner in an unincorporated business, please click here.

Source: https://www.bestshorttermloans.uk/blog/online-business-loans-to-grow-your-company/