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Bridging Loans / Bridging Mortgages
What is a Personal or Directors' Guarantee?
A Director’s personal guarantee is a commitment made by a company director to take personal responsibility for the repayment of a company’s debt. Essentially, if the company defaults on its obligations, the director becomes personally liable to repay the debt using their personal assets, such as savings, property, or investments.
Bridging loans provide fast, short-term financing for property purchases or development projects. Lenders offer a “bridge,” a cash facility for a limited period, usually 6-12 months, to cover urgent funding needs when opportunities arise, such as property listings or business propositions.
This financing is typically used for property refurbishment or development, with the goal of refinancing or selling the property within the loan period. This could be through securing a buy-to-let mortgage or from a sale, ensuring the loan repayment.
Interest rates on bridging loans are relatively high for short-term borrowing, and the interest is usually calculated in full and either rolled over or retained, meaning it’s added to the total amount payable at the loan’s end.
When taking out a bridging loan, the mortgage lender may require completion of a JBSP form (or similar) and independent legal advice. This ensures that those not listed on the title deeds but involved in the mortgage understand the legal ramifications. This is often referred to as Non-Owner Borrower Independent Legal Advice or Supporting Borrower Independent Legal Advice. Affordability, income levels, and financial means should also be considered to ensure mortgage costs can be met.
For added security, bridging loan lenders typically require personal guarantees from company directors. These agreements and guarantee documents are detailed, so developers should be experienced and confident they can meet project targets. Any project delays could breach the loan agreement. Accurate cost estimates, timelines, and a clear exit strategy are critical to reduce risk exposure.
We provide Independent Legal Advice for Director’s Guarantees on Bridging Loans, ensuring you fully understand the risks and personal liability involved in signing and certifying guarantee agreements. Legal advice is essential since assets like property are often used as collateral, and borrowers must be aware of the financial risks involved.
When are Guarantees Required?
Lenders or creditors typically request guarantees when there is uncertainty about the borrower’s ability to meet financial obligations. Some common scenarios include:
Small Business Loans
Lenders often require a personal guarantee from small business owners, particularly if the business has limited credit history or is newly established. This ensures that the loan will be repaid even if the business defaults.
Startup Funding
Entrepreneurs seeking funding for a startup may need to provide personal guarantees, as investors often want extra security when investing in businesses without a track record.
Commercial Leases
Landlords may request a personal guarantee for commercial leases, especially from tenants who are new businesses or lack strong financial history. This ensures rent and other obligations will be met.
Credit Cards and Lines of Credit
For individuals with poor or limited credit history, lenders may require a personal guarantee before extending credit.
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Corporate Loans or Financing
Lenders often seek personal guarantees from directors of small or newly established corporations or limited liability companies (LLCs) to secure repayment if the business defaults.
Deed of Subordination
A Deed of Subordination is required by a lender if a company has borrowed from multiple sources. This deed gives the lender priority over other creditors regarding repayment order. It effectively places other creditors in a lower class, ensuring that the new lender is first in line to collect outstanding debt in the event of financial difficulties, bankruptcy, or foreclosure.
We offer Independent Legal Advice for Deeds of Subordination to ensure the financial and legal risks are fully understood. In cases where directors have loaned money to the company (via a director’s loan account), the deed may prevent the directors from withdrawing funds until the lender’s loan is fully repaid.
Company Debenture
Lenders may request a Company Debenture as a form of loan security, which involves a fixed or floating charge over the company’s assets. This includes both current assets like cash and debtors, and fixed assets such as property, machinery, and equipment.
A Company Debenture gives the lender a specific interest or right over the company’s assets in the event of default or non-payment, enhancing their security. Debenture holders have a stronger claim on company assets than shareholders in cases of insolvency or liquidation.
We provide Independent Legal Advice for Company Debentures, ensuring that the legal implications and financial risks are thoroughly understood.It’s essential to seek independent legal advice, as assets such as property will be used as collateral for the loan. A solicitor should thoroughly explain the financial implications and associated risks to the borrower.
How It Works
01.
Submit Your Documentation
Once we receive your mortgage details and other relevant documents, we can schedule a video appointment.
02.
Video Call via Zoom
In a 30 minuteapprox video call, we’ll review lender documentation, such as the Director’s Personal Guarantee, and discuss any associated risks
03.
3. Postage (Wet Signatures)
After the required documents are signed and witnessed, you’ll need to send them to us for stamping and certification, as wet signatures are still mandatory.
04.
Digital Copies
We’ll scan the documents, email you a digital copy, and send the originals to your solicitor on the same day we receive them.
