To secure a loan, lease, or credit agreement, business owners or directors will often be required to provide banks or other lenders with a personal guarantee. It is a commitment that they (the guarantor) will be personally responsible for repaying the lender if the business fails to do so. It is easier to enforce the personal guarantee if it can be proved the guarantor understood the terms of the contract at the time of signing, freely consented to it, and had the capacity to enter into the agreement. As a result, most lenders will require guarantors to seek independent legal advice prior to signing a contract. If you need independent legal advice for a personal guarantee, our specialist business lawyers can help. Get in touch today to get started.
What are the risks of personal guarantees?
Being a guarantor is not without risk. The guarantor’s personal assets will be on the line if they become liable for the full debt, exposing themselves financially. If the business defaults, it may also negatively affect the guarantor’s credit rating.
With their personal assets at stake, there is also an increased chance of disagreements and conflict between the guarantor, directors at the company, family members, or the lender. This can easily escalate into legal disputes or litigation, which can be costly, stressful and disruptive to a business.
Why independent legal advice is needed?
With the potential risk involved, it is essential that the guarantor fully understands the implications of the agreement they are making. Not only does this protect the guarantor from nasty surprises, but it also ensures the contract is enforceable for the lender. Financial contracts can be tricky to understand unless you are very familiar with legal terminology. The terms and obligations can be hard to follow and without an expert reviewing them for you; it’s easy to miss something that could have serious consequences for you. Using an independent solicitor ensures there is no conflict of interest and means you can be confident that you are receiving unbiased advice. During this process, your solicitor will be able to highlight and clarify potential risks and liabilities including any that may not be immediately apparent. Having consulted an experienced contract lawyer, both parties can enter the agreement confident that the guarantor fully understands the implications of the agreement they are making.
How to choose the right legal advisor for independent legal advice
It is important to choose the right legal advisor for each specific contract. When selecting a solicitor, make sure to choose one with the necessary qualifications and experience, as well as expertise in contract law. Choosing a firm with the Law Society’s Lexel accreditation guarantees a high level of quality for client care, compliance, and practice management. You should also look for specialisation in relevant fields, such as corporate and commercial law. It is preferable for your chosen solicitor to have no connection to any other parties in the agreement in order to achieve true independence. At Scott Bailey, our Lexel-accredited corporate and commercial team has extensive experience providing independent legal advice. With our lawyers on the case, you can rest assured that you will receive the highest standard of legal support.
The process of obtaining independent legal advice
Whilst processes will vary between firms, at Scott Bailey, we make the process as quick and easy for clients as possible. It can be broken down into three steps:
- Give us a call or drop us an email enquiry so that we can confirm our fixed fee, get you set up as a client and book in your appointment. It is really helpful to have the papers sent to us in advance of your meeting so that we can read through them and make sure there are no unexpected steps required.
- Meet face to face with one of our lawyers to go through your paperwork together, and to obtain the ILA. Depending on the lender, it may be that this can be done online, but generally face to face “in person” is still preferred by many lenders (and the personal touch, with a cuppa is nice!). This is your chance to ask us any questions you have regarding the documents before you sign.
- We will witness your signature (assuming you wish to sign of course!) and complete the lender’s adviser certificate, to prove we provided the advice in accordance with their requirement. If you prefer, we can send your signed paperwork back to your lender, or other solicitors acting on the transaction for you.
If you are looking for more information about Independent Legal Advice and our approach to it, including pricing, read our blog: What is Independent Legal Advice, and why do I need it?
Benefits of independent legal advice for personal guarantees
Having an expert examine your contract ensures you are protected against hidden liabilities, clauses, or obligations. It also ticks an important box for the lender, helping to pave the way for them to allow draw down of the all-important funds required by the borrower.
When your personal assets are on the line, it’s not worth taking risks. Independent legal advice gives you the best possible protection as a guarantor. With Scott Bailey’s specialist business lawyers, you have the peace of mind of knowing your contract has been reviewed by an experienced expert and that there are no nasty surprises lurking around the corner. To get started, contact us today.