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Business/Commercial Loans

Borrowing money is often a natural part of business; however depending on your company and loan type you may be personally liable for repayments.

Business/Commercial Loans

When it comes to running a business, borrowing money is often an inevitable part of the process. Money may be needed to kick start a brand new company or additional funds injected to maintain a healthy cash flow to assist in the day to day operations of an already established business. The structure of your business will affect the way you obtain lending, and the extent to which you yourself could be personally liable for paying the money back. You may operate as a sole trader or you may have incorporated as a limited company; both have different implications when it comes to repaying funds borrowed.

Sole traders

As a sole trader, you are personally responsible for repaying any debt that you take on, even if the money borrowed is used for business purposes. This is because your business is not seen as an entity separate from yourself. Should you be unable to keep up with the repayments on any borrowing, debt collection companies can and will look to you to pay back the money owed.

Limited company directors

One of the benefits of operating under a limited liable company structure is that the company is liable for any debts rather than the company director themselves. This means that if the company encounters financial difficulties which impacts on the ability to repay its debts, the lender cannot ask the director to pay this money back from their own funds. If your limited company is unable to repay their debts, and the company is subsequently liquidated, the debts are written off.

However, depending on the history and status of your business, you may be asked to provide what is known as a personal guarantee (PG) on any borrowing you take out for the purposes of your limited company. If you sign a personal guarantee then you, as an individual, take responsibility for paying back the loan should your company be unable to do so. This means that even if your company is liquidated, any debt that you have personally guaranteed will still have to be paid from your own funds. Personal guarantees are typically requested when a lender sees the loan as risky. This could be because the company is newly established, the loan is particularly large, or because the borrowing business has a history of late or non-payment of debts.

What next?

Should you be in the position where you are being hounded for outstanding business debts, you must seek expert advice as soon as possible. Left alone, your debt problems will only get worse and the options open to you will decrease. Call our experienced professionals today.

Lawrence O'Hara

Insolvency Adviser

Tel: 028 2132 6269

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