Feb 2011 – Tips on personal guarantees

One of the most frequent enquiries we get at the moment is from company directors worried about bank Personal Guarantees they have signed. A Personal Guarantee is generally given by a director as security for money borrowed by a company in which they are also a shareholder. If down the line the business is unable to repay the bank, it then looks to the director personally under the guarantee.

In the rush to set up a new business or get a project underway business owners might be forgiven for taking a casual approach to Personal Guarantees. This checklist of 12 things to consider when taking on a Personal Guarantee liability and how to handle things if the guarantee is called in is essential reading for anyone who’s given a personal guarantee or is thinking of doing so.

Before giving a personal guarantee

1. Explore other options you might have that would allow the business to borrow money without you being personally liable. Will the bank accept alternative security?
   
2. When you give a personal guarantee, the bank will often ask for a charge against your house to secure repayment. Think carefully whether you are prepared to put your family home at risk before agreeing to this.
   
3. Take legal advice to ensure you fully understand the implications and consequences of giving a personal guarantee. Never just sign a personal guarantee.
   
4. If you can avoid giving a guarantee, do so, because it can have severe implications for your personal finances (including bankruptcy) if the company can’t repay.
   
5. Where your landlord is asking for a personal guarantee it is usually best to offer a rent deposit instead.

Read points 6 – 12 of the Personal Guarantee Checklist on the Cousins Business Law website here or call Paul Harrison for advice tailored to your particular concerns. Paul can be reached on 01604 456591.   

Are you optimistic or fearful as we enter the first month of 2011? Will it be a year of growth, consolidation, or one in which your business will struggle? I’m a firm believer in taking an optimistic view whilst also preparing for the worst case scenario. With that in mind I was researching the other day some of the main reasons that small businesses fail.

The UK Insolvency Helpline has gone to the trouble of compiling a list of 65 of the most common reasons for business failure. These make interesting reading – ‘fatal leasing agreements’ and ‘personal extravagance’ were two that caught my eye!

But I think they’ve over complicated things. I think there is one area of business that’s the biggest indicator of potential business failure and that’s a company’s ability to get paid and manage cash flow. Whilst I agree a ‘failure to focus on one specific market’ or a ‘failure to adapt products to meet market needs’ might prevent growth and expansion, unless you get paid for the products you do sell to the customers you already have you won’t last very long.

I hope the list compiled by The UK Insolvency Helpline isn’t meant to be in priority order as cash flow problems and non-payment by customers don’t appear until 11 and 12 on the list. In my experience working with SMEs, it’s getting paid that the biggest challenge and the biggest threat to survival and it’s getting worse. A recent report from BACS, the organisation behind direct debits, reported that in 2010 SMEs had to wait an average of 41 days beyond their payment terms, over 9 days longer than in 2009. Surely this isn’t acceptable?

In support of those struggling to get paid, I put together guide to getting paid on time which might be of use.

I’d be interested to hear from you on this topic. What’s the biggest cause of business failure in your experience? Join in the debate via our Blog here.

There are a number of tactics a tenant can use to try to renegotiate their lease:

Break Clauses
If your lease gives you the right to terminate it before the end of the term, then it may be worth asking the landlord to reward you with improved terms in return for your agreement not to exercise that right. A landlord is unlikely to want to have to find a new tenant in the current environment so it makes commercial sense to offer a tenant an incentive to stay.

Extending the Term
Offering to extend the term of your lease in return for other concessions, a reduced rent for example, is also an effective tactic as it gives the landlord security of income for a longer period and may well enable the landlord to raise new finance or rollover existing finance secured against the premises. With financing difficulties still persisting for many people, landlords are again likely to want to cut the tenant a deal.

Lease Renewals
If you enjoy the right to renew your lease, then you can use the statutory renewal procedure to your advantage to negotiate more favourable terms, especially if you take the initiative in commencing that procedure.

Cousins Business Law offers two FREE services to help tenants renegotiate their leases:

Our business lease review service for tenants provides you with the information about your lease that you need before you open negotiations with your landlord.

Our lease renewal service is of particular importance for any tenant with 13 months or less to run on their lease. This service gives you the legal and tactical advice you need to commence the lease renewal procedure.

For more information or advice please contact Steven Petty, Commercial Property Solicitor on 01926 629005.

Business rates – are you paying too much?
Business rates are one of the largest costs to SMEs but many are unaware of the tax relief available.

A business in England that occupies only one commercial property is entitled under the rules to have their bill calculated using the small business rate multiplier where the rateable value is under £18,000 (£25,500 in London)…
Read more…

Minimum price for alcohol announced
The government has just announced its plans for the minimum price for alcohol, which it sees as a key instrument in its battle against “binge drinking” …
Read more…

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