Landlords and suppliers can sometimes ask you for a personal guarantee on a contract.
Unfortunately, that could mean that if something goes wrong, you have put your house at risk. Here are a few ways to protect your home and your other personal assets from potential business problems.
Personal guarantees
Banks, landlords and suppliers might ask you for a personal guarantee on lending or contracts. This is a great move from their perspective, because it gives them security if you default on a loan or fail to deliver on a contract. But as the business owner, signing a personal guarantee is risky. It’s legally binding, even if you run a limited liability business, so 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, too, extending the risk.
Some ways to protect yourself
Before you sign any contract, and particularly one with a personal guarantee, get advice from a lawyer to ensure you fully understand all the ramifications.
You can read more about the pitfalls of personal guarantees here at the Business.govt.nz website.
Ask us about better funding options
Throughout 2022 and 2023, you can still apply for the Small Business Cashflow Scheme through Inland Revenue. It’s potentially interest-free and we can help you apply.
We can also talk you through the pros and cons of other business funding options – do give us a call or drop us a note. We’re happy to help.