Skip to main content

Top Service News

Personal guarantees that work for you, not against you

Published on

With a personal guarantee in place, you may think you’ve got all bases covered should a customer begin to miss payments. However, construction industry creditors often find themselves in costly disputes with guarantors. Vague or badly drafted personal guarantees can leave you high and dry, with creditors questioning the legality or enforceability of a guarantee and ultimately, not paying what’s owed. 

What is a personal guarantee and when are they used? 

A personal guarantee is a promise bound in law. It’s a contract that says if the principal individual or company accessing credit (in the form of goods, money, or services) is unable to meet their financial obligations to the lender, then the guarantor will step up and do it on their behalf. 

Personal guarantees are used in all sorts of credit situations. When a bank loan or overdraft application is made, there’s sometimes a third party acting as guarantor to the borrowed money. This individual or business gives the lender more confidence; should the primary borrower find themselves unable to make repayments, the guarantor will step in. Landlords with tenants can use personal guarantees to insure their rental income. In some situations, a personal guarantee is the difference between a deal falling through and a deal taking place. 

What could go wrong? 

A well-written, carefully considered personal guarantee can push your business, and its financial success, forward. By giving you extra security to trade more freely, they can let you expand in new directions with minimal risk. However, this value is lost if the contract is flawed, and you’re left as vulnerable as if you’d had no personal guarantee in place at all. These are just some of the ways personal guarantees can lose their intrinsic value: 

  • The agreement hasn’t had the benefit of being seen and signed off by a specialist solicitor. 
  • The wording of the agreement is unclear. 
  • The guarantor hasn’t been given the opportunity to seek legal advice or properly understand what they’re signing. 
  • An original copy of the agreement hasn’t been received or the identity of the guarantor hasn’t been validated. 

How to avoid the pitfalls of personal guarantees 

Personal guarantees can be a very useful route to recover your money but the way they’re written needs to be absolutely watertight. There should be no grey areas, all key clauses should be included, and a specialist solicitor should lead the way. Without these a signed guarantee can be discharged by the courts, leaving you powerless and out of pocket. 

The most failsafe way to avoid a useless personal guarantee and protect your money is to use a specialist solicitor. We work with trusted partner Silverback Law specialists in both debt recovery and commercial litigation, making them the ideal choice for you to set out the terms of a strong personal guarantee. 

By enlisting the help of professionals, you can gain absolute peace-of-mind that should the worst happen and a debtor defaults, both your investments and your business itself are protected. Silverback Law can oversee every stage of the personal guarantee drafting, creating contracts that let you focus on day-to-day business, knowing that from a legal standpoint you’re covered and, if you need it, the debt recovery process will be simple. 

What makes Top Service Ltd different? 

As the only credit reference and debt recovery agency specific to the construction industry, we make it our mission to ensure our members receive the most up to date, credit information and company trading experiences which can make a real difference between company profit and painful write-offs. 

Are you struggling to recover the money you are owed?

Top Service members have access to an exclusive combination of no collection, no fee recovery services.

“We welcome the opportunity to talk to you about any bespoke changes you would like to make to our debt recovery procedures to fit the culture you have for maintaining customer relationships, whilst addressing the need to keep cash flow as fluid as possible for your business.Please contact our collections team to talk through any individual cases or to explore how else we can support you,” Emma Miller, Company Director Top service.

Contact our helpdesk team today on 01527 518800 to discuss how Top Service can support and help you protect your business.