Director's Guarantee

This guarantee can be used when a personal guarantee of the director or directors of a company is required, for example, to guarantee the company’s performance of certain contracts. A director's guarantee can be a valuable tool for companies that are seeking to secure financing or credit.

Providing a personal guarantee means that the director will be liable for the company’s debt or commitment, if the company does not meet its obligations. This type of undertaking can have serious consequences, so it’s important that you understand what’s involved before signing anything. 

What does it mean?

When signing a director’s guarantee, you agree to be personally liable for your company’s debts. As a company’s director, you might often be requested to provide a guarantee in support of your company’s obligations in various contexts, such as property leases, sale of goods contract, or simply a bank loan.

Providing a director’s guarantee can bolster your company’s credit rating and provide assurance to the company’s debtors. However, it also allows them to breach the ‘corporate veil’ and take your personal property to cover the company’s debts. If you do not have the money to repay the loan, this may result in you having to file for bankruptcy. As a director, therefore, it is important that you carefully consider what you are exposing yourself to. You should also be clear about your duties as a director, and understand that trading whilst insolvent is against the law. 

Types of guarantees

Joint or several guarantee

If your company has multiple directors, you might have to sign a ‘joint and several’ liability. This is a very serious undertaking, as signing the guarantee will likely allow the lender to pursue:

• all of the directors,
• some of the directors, or
• specifically a single director,

for the full amount of the debt owed.

All moneys guarantee

An ‘all moneys/all accounts’ guarantee makes the director liable for all the debts and financial obligations of the company, present and future, regardless of how they arise. This is again an extremely risky guarantee. The final amount that the company owes may end up being a lot higher than what you signed up for. It is therefore crucial to limit the proportion or amount that your guarantee covers. You should be clear about all the relationship and financial obligations of the company, and wary of situations that your company might face when it hits rocky times.

Should you give a guarantee?

You might be able to find lenders for your business who offer credit without a guarantee. As with all things in finance, however, you might have to pay an additional cost. This is because your creditor may want to be compensated for the additional risk that they are taking on. If you cannot afford to pay the additional cost, giving a director’s guarantee might be unavoidable for your business. If you have no choice but to give the sign the guarantee, make sure you consult with a lawyer first and are completely confident about what situations will make you liable for your business debts.

What are the benefits of a Director’s Guarantee?

• It can help a company secure financing or credit that might not otherwise be available. Lenders or other creditors may be more willing to extend credit or provide financing if they have the additional security of a personal guarantee from the company's director.
• It can provide additional protection to creditors in the event that a company is unable to repay its debts. If the company is insolvent or goes bankrupt, the director's personal assets can be used to repay outstanding debts.
• It can demonstrate the director's commitment to the company and its success. It can help to build trust with lenders or other creditors and may also help to improve the company's creditworthiness.
• In some cases, providing a director's guarantee can help a company negotiate more favourable terms for financing or credit. Lenders or other creditors may be more willing to offer lower interest rates, longer repayment periods, or other favourable terms if they have the added security of a personal guarantee.

Further information

• What Is a Director’s Guarantee?
• Thinking About Signing a Director’s Guarantee? Read This First
• Can I Terminate a Director’s Guarantee?