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What should you pay attention to in the event of a Surety or Guarantee?

When applying for financing, the lender may require other contractual matters in addition to interest and repayment. For example, a request may be made for a surety or a guarantee. The lender requires additional security before providing a loan. What do you need to  bear in mind when you are considering corporate financing with a private surety/guarantee? A surety can have far-reaching advantages or disadvantages. It is therefore important to properly map out which obligations you have when you enter into the contract, before concluding the agreement. It is even more important to make an inventory in advance in terms of what you are willing to accept in terms of sureties. Or what is possible for you in terms of guarantees. For example, what can you put forward as a surety; your private assets, shares in the relevant company, your house? And what does this mean for your partner, your company, your other businesses or your control?

Financing with surety

There are three parties involved in the surety.

  • The party providing the loan: The creditor or lender
  • The party receiving the loan: The debtor or credit applicant
  • The party that gives surety for the loan

The lender requires extra security in the form of a surety, which can vary greatly in form. A lot of misery can be prevented by properly arranging matters before entering into the surety agreement. This also greatly increases the chance of a successful application.

Surety with private assets

Because a private limited company has, by law, its own legal personality, you and your private limited company are, from a legal point of view, not the same party. For this reason, it is possible to stand surety for your private limited company using your private assets. This may be a requirement from a bank, providing them with an additional guarantee of repayment. After all, if the private limited company is unable to meet its obligations, you can also be held liable for the debt privately. This could mean that your home or even your partner’s savings account stands surety for your business loan. For these reasons, it may make sense to record your assets and your partner’s assets differently from a legal perspective, in advance. But there is more that needs to be arranged.

Additional complex conditions

There are complex legal rules in this area that attach additional conditions to administrative control. For example, there may be a difference whether you have an interest in the guarantee in your capacity of a director or that of a shareholder.

Help with a corporate surety

Fruytier Lawyers in Business often assists (small and medium-sized) entrepreneurs. We speak both the language of the (small and medium-sized) entrepreneur and that of lenders such as banks or investment funds. This allows us to assist you in setting up financing with surety. We answer questions for you regarding the surety you put forward and the possible consequences thereof. Sometimes, (private) matters must be described differently legally in order to safely enter into a surety construction. As corporate law attorneys, we first and foremost assist you in identifying your needs and your options. By formulating these clearly, we can specifically shape your wishes. By subsequently making any legal adjustments to your company or private agreements, you are assured of the best possible protection and optimal opportunities. Fruytier Lawyers in Business will help you find your desired financing with surety by making sure you are well-prepared before approaching the right provider.  

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