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When I sign for a loan for a company,…
When I sign for a loan on behalf of a private limited company, is my liability limited to the paid-up capital of the company only?
I was having a conversation with a friend recently who took a loan on behalf of the company as the company was expanding and buying more inventory. They took a company loan which is way more than the paid-up capital of the company. He thought that his risk was minimized to only the paid up capital.
Whenever you sign a loan for the company, you sign twice. Once on behalf of the company and the second time as an individual as a personal guarantor (PG).
This is when the time bomb ticked. If for whatever reason, the company is unable to pay, the banks can go after ALL the personal assets of the individual who signed off because he is the personal guarantor. Personal guarantee is very common for SME business owners who are looking to expand the company because larger funding allows the company to generate faster turn around time to increase the sales and profit margins.
As the company grows and profits are made, most people forget to undo the personal guarantorship. This might come back to bite them many years down the road if unexpected scenarios might appear which we can share more with you as we have an initial conversation.
We help to manage risks for business owners to ensure they grow in a sustainable way and better still, to look into risk management for business owners.
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