Guarantee from a – Director, Company or Person

Use with:

Bank Reference Limits

Credit Reports

Credit Limit Assessment

Granting credit to a new limited company, or any business, can be a lottery. I look at credit applicants being in three categories: 1) Safe to conduct credit sales 2) Un-safe for credit sales 3) Would consider for credit sales with a guarantee

Those in 3) are considered for credit due to having most of the requirements for gaining credit. However, they lack trading experience, or they have a risky or seasonal business etc. They are not considered for credit on the basis that they can supply a guarantee.

A director of a new company being asked to supply a directors guarantee for a credit facility should not be surprised: the s ame person could not obt ain a company overdraft at their bank without a personal liability.

When the applicant completes a credit application form, you may ask what other directorships they have. You can obtain this information from a credit reference agency: known as a ‘directors search’.

In some instances, a company (‘A’) you provide credit to, may have a parent company (‘B’), which would mean they are part of a group. However, if the company (‘A’) were to owe you money, you would not be able to sue the parent company (‘B’). The parent company (‘B’) will share in all the profits of the company (‘A’), but none of the debts: unless you request a cross company guarantee, signed by a director of the parent company. You should bear in mind that the company does not have to be a parent company for you to obtain a cross company guarantee.

You may find that the other company connected with the credit applicant has very little or nothing to do with your applicant in the way of business: but share directors. It’s not to say that an applicant, who is part of a number of companies, will give you extra reason to request a guarantee or to reject the application, however, you may want to secure your position as a creditor. The more guarantees, the better!

MAINTAIN YOUR CREDIT POLICY AS IF YOUR COMPANY DEPENDED ON IT (IF IT DOES NOT ALREADY) IT WILL SOON, THE PRESSURE TO PROVIDE LONGER & HIGHER CREDIT IS GREATER THAN EVER