Borrowers beware warns Higgs

 08/07/2009

Company directors are being urged to err on the side of caution when applying for corporate loans, no matter how anxious they may be feeling through the current economic downturn.

That's the message from leading Midlands law firm Higgs & Sons, who have issued a plea for bosses to be wary of entering into personal guarantee arrangements in order to secure corporate borrowing. 

Damian Beard, banking partner at Higgs, is making his reservations known about such arrangements, as banks and other lending institutions continue to press for personal guarantees even more so than previously, as they become much more risk averse.

Damian said: "Pursuant to the Enterprise Guarantee Scheme, and despite public perception, banks still require directors to enter into guarantees when they apply for a loan under the scheme. 

"This has made it more important than ever for directors to be aware of the inherent risks involved when entering into personal guarantees.

"It is often a common misconception amongst directors that if the guarantee is capped at a specified amount, there will be no excess charges imposed.  On the contrary, many guarantees can often force the guarantor to pay interest and also any legal costs and expenses associated with enforcing the guarantee."

Higgs believes that many people are not aware that personal guarantees can also be enforced against the guarantor's estate on death and that rather than being attached to a particular facility, a personal guarantee usually contains an all monies clause.

This means that when a director's company enters into future facilities, the same guarantee will still apply. 

Damian added: "Whilst it may be reasonable to assume that guarantees are brought to an end once the term of the loan expires, often termination will only occur when there is written consent.

"Prospective borrowers should seek professional advice before going ahead with a loan or funding arrangement to ensure that the risks and liabilities are fully understood and can be weighed up against the commercial benefit of the loan."

For more information about Higgs & Sons' corporate department and the implications of personal guarantee arrangements, please contact Damian 01384 342116.