Your house is your home. It’s precious; don’t place in it unnecessary jeopardy.
We can help you protect your home and other personal assets from being caught up in any potential business issues. Here are just a few tips to get started.
Suppliers and commercial landlords often ask you for a personal guarantee on a contract. Unfortunately, this could mean that if something goes wrong, you have put your house at risk. What follows is some context and basic advice to help safeguard your home and assets from potential business problems.
Personal guarantees
Banks, landlords and suppliers might ask you for a personal guarantee on lending or contracts. This makes sense from their perspective because it gives them security if you default on a loan or fail to deliver on a contract.
But as a business owner, signing a personal guarantee can be risky.
It’s a legally binding document, even if you run a limited liability business. Therefore, if your business falters or there is some kind of legal dispute, you could lose it all. It’s also worth remembering that some personal guarantees can cover future loans, extending the risk.
Some ways to protect yourself
• Don’t agree to the personal guarantee. Try to demonstrate that it’s not necessary, but if you can’t convince the other party, look around for another lender, landlord or supplier.
• Negotiate better terms, such as a clear termination date for the personal guarantee, to prevent it from extending past this.
• Consider putting your large assets – like your home – into a Family Trust. This is one way to protect them from personal guarantees. However, it’s not something to be done lightly. The rules around Trusts are more complex than they used to be (you can learn more about this here), and professional advice is strongly recommended to ensure everything is appropriate and legally compliant. Pathfinder Solutions can help you with this, so let us know if you’re considering this option.
Overall, the most important piece of advice we’d offer is this:
Before you sign any contract, particularly with a personal guarantee, ensure you fully understand all the ramifications and seek professional advice to make certain there are no “blind spots”.
About Pathfinder Solutions
Pathfinder Solutions advisory team members have either owned or managed businesses, or are investors themselves, so we know first-hand the challenges you face in your world.
Sure we’re Accountants, but the best solutions in business come from focusing on more than just the numbers. Our real-world business experience delivers just that.
