Fair fees for personal guarantees by a director

D

deuline

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There are 2 of 3 directors in a company who are willing to provide a personal guarantee for a loan. I'm the third and don't think it's a good idea. The other two say that's OK, but want to be paid a fair 'fee' for their putting up the guarantee. This is of course in addition to paying the interest fees to the lender.

What's a reasonable fee / percentage for the company to pay to these directors on top of the interest it's paying to the lender?
 
How much is the loan for ?

The issue of a fee being paid to a Director for signing a PG for their firm is nonsense so kill that for a start, it is opportunistic on the part of your co-directors.

I agree with you not wanting to sign a PG but if the business needs it and the directors don't have capital to inject then you have a tough decision to make, sign it or don't sign it but depending on how large the loan is, how long you are banking with the company bank etc you should try to negotiate this away and not make it a condition of loan approval, not always easy to do that.
 
I don't think it is that untoward for the directors to request some compensation for additional personal risk
The company is a limited liability company and as directors they have a fiduciary responsibility to ensure the company is managed correctly.

This does NOT extend to an obligation to put their personal assets at risk for the sake of the company. If they are incurring additional personal financial risk on behalf of the company it is not unreasonable to seek some reward for the taking of such risk.

If the issue of PG is an issue (as it appears to be anyway from the OP), has the company sought out its options of securing a loan backed by the Credit Guarantee Scheme?
 
Companies do this all the time in intra-group situations. Guidance there seems to be what is the benefit to the person taking out the loan from being able to provide a PG. This usually means what is the interest rate differential between the rates offered, the interest rate on the loan and the interest rate on the loan (but accounting for the additional PG).

Once you have some estimate of that, then you can work out a fee.

But *strongest caveat* I have only seen this with the largest corporations, never in a personal setting.
 
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