Personal guarantees for company loans in Ireland: a director's guide

A limited company is a separate legal person. Normally its debts belong to the company, not to its directors or owners. A personal guarantee changes that for one particular debt. If the company defaults, the lender can pursue the guarantor personally for the amount guaranteed. That is different from security given by the company itself, which our guide to secured vs unsecured business loans explains.

Personal guarantees are not limited to bank loans. Directors are often asked to give them for overdrafts, asset and vehicle finance, invoice discounting, premises leases and even supplier credit accounts. Each one is a separate personal commitment, so it is worth keeping a list of every guarantee you have signed.

Not all guarantees carry the same level of risk. The wording of the document decides how much you could owe and for how long.

• Limited guarantee: your liability is capped at a fixed sum or a percentage of the loan. Check whether interest, default charges and legal costs sit on top of the cap or inside it.
• Unlimited guarantee: you may be liable for the whole debt, plus interest and enforcement costs.
• Specific guarantee: it covers one named facility, such as a single term loan.
• All-monies guarantee: it covers everything the company owes the lender now or in the future, including facilities taken out after you sign.
• Joint and several guarantee: where two or more directors sign, the lender can usually claim the full guaranteed amount from any one of them, not just a share. That director may then have to seek a contribution from the others.
• Secured guarantee: the guarantee is backed by a charge over a personal asset, such as a property, which gives the lender a direct claim on that asset.

Lenders ask for personal guarantees to reduce their risk and to make sure the people running the business are committed to repaying. You are more likely to be asked for one when:

• the company is young or has a short trading historyHow long a company has been actively trading, and the record of that trading shown in its filed accounts, bank statements and tax returns.
• the loan is unsecured, with no property or assets pledged by the company
• the company's accounts show thin profits, losses or high existing borrowing
• the amount is large relative to the company's size or net assets
• the lender is a non-bank or specialist lender funding faster or more flexible products

Whether a guarantee is needed, and how much it covers, is a decision for each lender, alongside its other business loan requirements. Any finance is subject to status and lender approval, and terms vary from one lender to another.

The State-backed Growth and Sustainability Loan Scheme (GSLS) is the clearest example of a capped guarantee in Irish lending. Loans up to €500,000 are unsecured and generally have no personal guarantee, subject to certain exceptions. Loans above €500,000 may need security, at the lender’s discretion; any personal guarantee is capped at 20% of the loan. If a lender outside the scheme asks for an unlimited guarantee, the GSLSA State-backed SBCI scheme offering loans of €25,000 to €3 million over seven to 10 years through participating lenders, for long-term growth, resilience or climate action projects. cap is a useful reference point when you negotiate.

Approval still depends on each participating lender's own credit assessment, and the scheme has its own eligibility rules and exclusions, set out in our GSLS guide.

The main risk is simple: if the company fails to repay, you may have to pay from your own savings, income or property. Some points directors often overlook:

• Limited liability does not protect you for guaranteed debts, even if the company goes into liquidationThe formal process of closing a company, in which a liquidator sells its assets, pays creditors in a set order and dissolves it..
• A guarantee usually survives your resignation as a director or your exit from the company unless the lender formally releases you.
• Interest, default charges and legal costs can increase the amount claimed.
• If your family home is offered as security, a spouse or partner who co-owns it may also need to consent, and their position should be considered separately.
• Being pursued under a guarantee, and any court judgmentA court order that a person or company pays a sum of money. that follows, can make it harder for you to borrow personally in future.

The Central Bank of IrelandIreland's financial regulator and part of the Eurosystem.'s SME Lending Regulations protect SMEs and the guarantors of SME credit. When a regulated lender asks for a guarantee, it must clearly explain why the guarantee is needed, the possible consequences for the guarantor, the guarantor's obligations, and the warning statements the regulations specify.

During the loan, lenders must keep guarantors informed in certain situations, for example if the terms of the facility change, the borrower gets into financial difficulty or is at risk of being classed as not co-operating, or security is realised. If security is sold, the lender must disclose the amount received, the costs and any remaining debt.

Not every lender is covered by these regulations in the same way, so ask the lender how they apply to your facility.

A personal guarantee is a legal document, and its wording matters more than any verbal assurance. Before signing, take independent legal advice from your own solicitor, not one acting for the lender or the company. A solicitor can tell you whether the guarantee is limited or unlimited, specific or all-monies, joint and several, and what triggers a demand.

Many lenders ask the guarantor to confirm that they received independent advice or chose not to. Choosing to skip it is rarely wise for a commitment of this size.

Guarantee terms are sometimes negotiable, especially where the company has good trading figures or offers other security. Points worth raising include:

1. Ask for a cap on the amount, ideally a fixed euro figure that includes interest and costs.
2. Ask for the guarantee to cover only the specific facility, not all monies.
3. Ask for a time limit, or for the guarantee to fall away once the balance drops below an agreed level.
4. Ask for your share to be several (proportionate) rather than joint and several where several directors sign.
5. Ask for the family home to be excluded from any security.
6. Agree in writing what happens if you leave the company.
7. Compare options: a State-backed scheme or an asset-backed product may need less personal security. See whether a company can borrow without a personal guarantee.

Illustrative example: capping your exposure

Welcome Finance is a commercial finance broker, not a lender, and cannot give legal advice, so the guarantee itself should always be reviewed by your solicitor.

The lender can call on the guarantee and, if you do not pay, take you to court for the guaranteed amount plus permitted interest and costs. Limited liability does not protect you for that debt.

If the company misses repayments, the lender will normally contact the company first. If arrears continue, it may demand repayment under the loan and then call on the guarantee, usually by sending a written demand to the guarantor.

If the guarantor does not pay, the lender can issue legal proceedings. If it gets a judgment, it can use enforcement methods such as a judgment mortgage over property, instalment orders or, in serious cases, bankruptcy proceedings. Interest and legal costs can be added along the way.

If your company is struggling, act early, and consider whether refinancing or consolidating its debt could help. Talk to the lender, your accountant and a solicitor or insolvency adviser before arrears build up. Early engagement often gives more room to agree a repayment plan or a settlement of the guarantee.

Our panel of specialist non-bank lenders can consider unsecured and short-term business loans, working capital loans, merchant cash advanceA form of finance where a provider advances a lump sum in return for a fixed percentage of the company's future card takings until an agreed total is repaid., revenue-based financeFunding repaid as an agreed share of a company's future revenue rather than through fixed monthly instalments, so repayments flex with sales., stock financeFunding used to buy stock or inventory, where the lender pays suppliers or advances against stock held and the company repays as goods are sold. and trade financeFunding and payment tools that support buying and selling goods, especially across borders., and some of these lenders may ask directors for a personal guarantee. We do not arrange SBCIA State-owned body that makes low-cost funding and loan guarantees available to Irish SMEs, farmers and fishers through participating banks and non-bank finance providers. loans. Tell us what your company needs and we'll tell you honestly whether our panel can help, or where to apply instead. If a panel lender asks for a guarantee, we can tell you what the lender has asked for; we do not give financial or legal advice, so your solicitor should review the document. We are paid commission by lenders. We do not charge your company a fee and never ask for payment upfront. Welcome Finance is a commercial finance broker, not a lender, is not regulated by the Central Bank of Ireland, and arranges business-purpose finance only for companies registered in Ireland (LTD, DACA type of Irish private company under Part 16 of the Companies Act 2014 that keeps an objects clause in its constitution, limiting what it can do, and uses the suffix DAC., PLC, ULC).