In this article, we’re going to break down the two common contenders: personal guarantees vs cross-company security, so you’re not left scratching your head when you’re in need of funds.

Securing that much-needed financing for your business is like unlocking a whole new level in your entrepreneurial journey. But before you dive into the world of loans and credit lines, it’s vital to understand what security you might have to give.

Why Security Matters:

Think of security as the lender’s insurance policy. It’s their way of saying, “We trust you, but just in case things go sideways, we’ve got a backup plan.” Security helps minimize the risk for the folks lending you the money. Now, let’s dive into the options available.

Personal Guarantee:

So, you’re looking to score some cash for your business. A personal guarantee is a bit like saying, “If my business can’t pay up, I’ll personally step in and make things right.” Don’t sweat it too much; this is common, especially for smaller financing needs. For instance, if you’re after a £100,000 Invoice Finance facility, the lender might ask for a £20,000 personal guarantee. That’s typically around 20% of the overall security.

Cross-Company Security:

This typically comes into play when you’re dealing with larger financing amounts. Here, a parent company of the group company steps in to back your business’s financial commitments. In other words, they’ve got your back if things go south.

Fraud Warranty:

A fraud warranty is like a promise that you won’t mis-use the facility on the financing deal. But hold your horses; this usually comes into play when your business’s financial profile is super robust. It’s like saying, “I solemnly swear not to abuse this Invoice Finance facility.”

Key Takeaways:

1. Enforceability: Personal guarantees provide a lender with some added comfort when it comes to getting their money back. They can work directly with you to sort things out in case your business falters.

2. Personal Exposure: Nobody loves the idea of giving a personal guarantee, but a personal guarantee shows you mean business and are committed. 

3. Facility Usage: Lenders might ask for a personal guarantee to ensure you use the funds for business purposes. And not that awesome cruise you had your eye on!

When it comes to financing your business, don’t be afraid of the security talk. Hopefully, you now understand the key differences between Personal Guarantees vs Cross-Company Security. Personal guarantees are common and practical, especially for smaller businesses. Cross-company security and fraud warranties are more for group companies or businesses with a strong financial background. Whatever you choose, just make sure you’re crystal clear about the terms and what’s at stake. And remember, it’s always a good idea to work closely with your lender and financial advisors to make the right choice for your unique situation. After all, it’s your business’s future we’re talking about!

For help on getting the right kind of loan for you, contact John

We’ve talked a little about Invoice Finance in this article. You might be wondering if Invoice Finance is right for your business. Fortunately, we’ve got just the post for you… Invoice Finance: What is it and is it right for you?