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Finance without a personal guarantee

Uncategorized Dec 20, 2021

THE QUESTION
Do all lenders require a personal guarantee (PG) for a 70% LTV bringing loan? If so, is there any way to do a bridging loan without a PG (i.e. by reducing the LTV to less than 50% for example?)
THE ANSWER
Pretty much any lender lending to a limited company, rather than a person, wants a PG. This protects the lender from the shareholders winding up the limited company overnight (as they can well do) and risking any potential losses not being made good.
Borrow in your personal name and PGs are not required because the lender can just come after you for any shortfall. They cannot do this if the entity that borrowed the money doesn’t exist any longer. A PG just means that you are the lender’s failsafe if the company can’t or won’t pay up - no more, no less.
Any kind of business loan, including mortgages, lent to limited companies have PGs at their core, but mortgages are massively less risky for a bank to lend on.
Banks rarely lend more than 75% of the value of a rental property, to keep them safe if they ever have to repossess. They can then sell it off to retrieve their lent capital. In most cases, they get fully repaid from just that exercise. In the event they didn’t, that is where the PG comes in, to mop up the incidental shortfall.
For this reason, mortgage PGs are unsecured i.e. you are not putting any other assets of yours at direct risk of sale or loss.
Business loan PGs are starkly different because the underlying asset of the business (stock, for instance) lacks the inherent residual value of a property and can sometimes be worth next to nothing.
For this reason, business loan PGs are invariably secured on a property asset owned by the borrower and usually the only one they have is their main residence. This a completely different level of risk for the borrower.
If you want to use a mortgage lender that doesn’t require PGs, a decent broker will find you one, but be prepared to pay for that in the interest rate charged to offset the additional risk the bank is taking.

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