For every business that uses a broker to source a funding solution, there are many that approach lenders directly and realise all too late that their loan has brought with it unexpected charges and responsibilities.
The obvious advice, to read the small print, is easy right? Unfortunately not, as some of the financial terminology in that small print is either unknown or not fully/misunderstood.
‘PG’ springs to mind, so commonly used that you rarely see it unabbreviated and therefore its meaning is missed. In business, no loan will be given on an unsecured basis and so banks/alternative lenders ask for a PG – personal guarantee – as security. The possibility of your limited company being unable to pay means they require a legal agreement on who would be liable for paying the debt. It is important to understand every clause within a personal guarantee, as a lender will not hesitate to enforce it if necessary. Seeking independent advice will mean a PG that suits your circumstances. For example, we hardly ever need to use a ‘secured PG’ that could result in you having to sell your personal property.
We can also access lenders comfortable with a ‘debenture’, giving permission to seize the assets of the company, as a satisfactory security alternative to a PG. Again a word you likely don’t know and so don’t know to ask about. You would be surprised at what assets the terms of a debenture could include – from stock and equipment to your company website. ‘Soft assets’ (another jargon alert! Think items easily moved away from lenders) provide less guarantee, but may be suitable depending on the size/structure of you loan.
So don’t just read the small print – understand it, question it, and use a broker who can negotiate it.