There are sometimes situations in which a business needs to secure funding but doesn’t have a robust credit profile to satisfy lenders. Under these circumstances, a Directors Personal Guarantee may be an option.

The Directors Personal Guarantee

In the context of credit card lending, a directors personal guarantee is associated with an agreement with a commercial lender that ensures that you’re liable for any debt that your business may take on.

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Learning about the ins and outs of a directors personal guarantee can be overwhelming for some. Legal specialists such as https://www.parachutelaw.co.uk/director-guarantee will be able to advise.

At its core, a directors personal guarantee makes you responsible and liable for paying off business debt in exactly the same way as you would for your credit cards or mortgage. The logic behind business lenders ensuring that owners agree to sign a personal guarantee is to mitigate the risk to their capital if your business fails.

Whilst the pandemic saw the requirement for personal guarantees waived in many cases, this was a temporary measure.

Personal Credit Cards

If a directors personal guarantee doesn’t sound appealing, know that it isn’t your only option, nor is taking on the burden of business credit in order to fund the operations of the business. Another viable, and in some cases preferable, option is to make use of newly opened or existing personal credit cards in lieu of sending in an application for business credit.

But it’s important to keep in mind that when using personal credit versus business credit cards, you’re still completely liable and personally responsible for any debt. Moreover, if you’re dependent on the same card for day-to-day things, using a fraction of it for your business will limit your ability to use it for personal expenses.

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Personal Credit Score

However, that isn’t the sole reason you may not want to use personal credit cards more than you need to. You should also take into account the effect it may have on both your credit score and reports.

Business credit cards aren’t usually reported to agencies for consumer credit, although they can be under certain circumstances.

If you can locate a business lender who is able and willing to give you a credit card for business without requiring you to sign a personal guarantee, then the account shouldn’t be reflected in reports concerning your personal credit as you are not acquiring consumer debt.