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Vehicle financing – Personal Guarantees

09 December

2020 has seen many businesses facing unprecedented challenges as Covid-19 continues to disrupt business and create severe financial problems. The Events, Coach and bus sectors have all had to endure hardships with many fleets of vehicle around the country parked up since February.

The situation faced by many has been highlighted recently by various campaigns aimed at raising the profile of the plight faced by several operators facing hardship as a result of the pandemic and who have given personal guarantees to finance their assets.

So, what is a Personal Guarantee?

A personal guarantee is an agreement that means a business director takes a certain level of responsibility for his or her company’s debts in the event that they cannot be paid back by the business itself. Operators in any sector might consider a personal guarantee worth providing if it means they can finance vehicles or take on debts they are confident of managing comfortably.

From a lender’s perspective, a personal guarantee makes a loan deal more secure because responsibility for paying it back falls not just to the borrowing company but to the individual directors involved as well.

The Challenges faced by operators.

Generally  there is a lack of support being offered by financing companies to operators by way of repayment holidays.

By way of example, the Governments Retail, Hospitality and Leisure Grant Fund (RHLGF) was only given to businesses at the discretion of local authorities with only 15% of coach operators being able to access any form of Government Grant Funding. With this, only 20% of operators have been able to access the Coronavirus Business Interruption Loan Scheme.

The low percentage of businesses being able to access much needed funds has resulted in once prosperous operators facing severe financial difficulties.  Financial difficulties were coupled with general reluctance by finance companies to grant payment holidays (all of which have now ended anyway as were typically 3 or 6 month) with operators being saddled with the interest costs for the duration of the payment holiday coupled with increased repayments once payments resume.

The unfortunate end result for a number of operators include the prospect of finance companies triggering personal guarantees when vehicle payments were missed.

How can Backhouse Jones help?

We have seen a significant increase in enquiries from operators who now find themselves in a position where personal guarantees are being called in by finance companies. The common scenario being where an operator has had a vehicle repossessed after failing to make payments. The vehicle is then sold off, often for a lower value, with the operators then pursued further for the balance of the agreement. In the cases where a personal guarantee has been given, operators have been pursued aggressively with proceedings often issued by the finance companies.

Our advice is to act promptly so as to avoid the finance company issuing costly Court proceedings against you and look to reach an agreement that is affordable and protects any personal assets. We can assist with this and urge you to contact us if you wish to discuss further.

Should you have concerns about personal Guarantees taken out to finance business assets, please call a member of our Dispute Resolution team on 01252 828 300 or email disputeresolution@backhouses.co.uk.

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