Thanks for all the replies, they've been informative and helpful. Just some more information:
- The club has a substantial asset in their land which must would be worth far in excess of the value of the amount being borrowed.
- Loan is €30k, big but certainly not huge.
- Its a credit union loan so we also have to keep €5k in credit union shares as security for the loan.
- Credit Union is also taking a charge on the land as security.
- The loan represents approx 66% of the total cost of our development. The balance has been funded by grants and money already raised.
If you sign a joint and several guarantee, you should consider yourself liable for the full amount (plus interest). You should also consider at what stage your guarantee will be released. Does it only cover this specific loan or does it cover future loans or extensions to this loan.
Gulliver (retired banker)
The guarantee is specific to 1 loan agreement which is for €30k over a 5 year term.
What does this mean?
If you sign this guarantee and for whatever reason the club does not repay the loan the bank will come after all of you but they will target the one who is easiest to get the money from. If others are mortgaged to the hilt than the easiest mark may be you.
You should not sign any personal guarantee until you have been given the advice of a solicitor. Unless this is for a relatively small sum of money and you can afford the risk of the total amount. And if you've been asked by others to sign the guarantee you all 6 should be open and honest to each other as to what you are signing up for. Don't be put under peer pressure.
If you do sign the guarantee make sure it is not open ended, that the amount is clearly stated and fixed, it's duration, and how you can get out of it.
Unfortunately, there is no getting out of it until it is repaid. THats 1 of the clauses of the guarantee.
The credit union have told us that in a worst case scenario, they will pursue the personal gurantees before pursuing the lands of the club to repay the loan. As I understand it, being indemnified by the club means that in this situation we as guarantors can call on the assets of the club. I think it is probably about PR for the credit union ie they don;t want to be the ones to force the wind up of the club.
Firstly, I don't think having liquid assests will make you more of a target for a bank if all goes wrong. After all, you do not know what assets your co-guarantors have and the bank may not or should not know what assets you have (make sure your savings are not in the lending bank).
Secondly, what is the value of the club indemnity? If it needs to be invoked then surely it would be unable to honour it?
Thirdly, I would suggest avoiding personal guarantee for a club as others have posted here - +1.
Thats, a good point about the savings. I have an account with the lender but its not where the bulk of my savings are. They haven't asked for any financial details from my so I would assume they have no idea of my circumstances.
There is no value placed in the indemnity by the club.
Avoid PGs like the plague if you can help it. It's one thing having a PG for your own business if you're trying to keep it afloat. But for a sports club?! Not in a million years would I sign one.
Also, the clubs indemnity is worthless. If the club can't pay back the loan, and the bank enforces the PGs, then being indemnified by the club (which is unable to pay back its loans anyway) is a fallacy.
As I am on the management committee of the club I'm obviously aware of the financial status of the clubs finances. I do feel that the club is more than capable of repaying this loan over the agreed period and to be honest. Its an unfortunate situation and apparently we have borrowed several times in the past from the credit union without having to offer personal guarantees but I suppose with all thats being goiing on with the banks etc over the past few years everyone has to cover their own asses. The problem is that the club really needs to devleop and we could spend 5 more years fundraising and then develop or we can borrow now and spend the next 5 years trying to grow our membership based on the redevelopment.
To be honest, I think I will sign in the end but I'm going to to meet with a solicitor and discuss before making my final decision.
Thanks again for your insights.