Brickflow guide to choosing a property development team
A key to success in property development is having the right team. Who you need and how do you find them? Read our guide to find out.
A personal guarantee is your legal promise to repay a business loan where you are a beneficial owner. Find out how it works and read our need-to-know tips.
Defined
A personal guarantee is your legal promise to repay loans issued to a business where you are a beneficial owner. Providing a personal guarantee means if the business becomes unable to repay a debt, then you accept personal liability, meaning you can’t just walk away.
They are standard practice for development finance and are required from all shareholders, or as a corporate guarantee. The Industry average is 15%-25% of total loan amount.
Normally, the higher the LTGDV, the higher the personal guarantee. Banks usually want twice the cover on a personal guarantee amount, so if the amount is £1m, they require evidence of a Net Asset Value (NAV) of more than £2m.
Need to know
In practice
Personal guarantees are conceptual security, rather than actual, alternative security. They’re there to ensure both lender and borrower are strategically aligned. Lenders don’t expect to enforce them and they only do as a last resort, but they exist in case things go wrong.
Each lender will take a different approach, but here’s how they might work in reality:
Here’s how you may be able to reduce a personal guarantee amount:
What happens if I really don’t want to provide a Personal Guarantee at all?
Unfortunately, every UK lender we know will insist on a Personal Guarantee. The lenders view is; if you won’ back your own project, then why should we. However, if you really feel uncomfortable with it, then you could try the following;
A key to success in property development is having the right team. Who you need and how do you find them? Read our guide to find out.
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