I don’t need to tell you that being a guarantor could impose a considerable, perhaps even ruinous, financial obligation on the guarantor.
But people never really see it quite that way at the outset. Suppose you are setting up your new business. You are excited about it. Everyone in your family is urging you on. You are absolutely confident that you can make a success of it, you’re willing to give it all you’ve god, you know there’s a big demand for what you’re selling… and so on. Your family are behind you, they believe you can do it too. They want you to do it.
The only thing holding you back is the landlords. The landlords of the premises you desperately want to take are insisting that you must provide guarantors because your financials aren’t strong enough.
Of course they are not strong enough – you only just starting up in business. But that’s tough luck as far as the landlords are concerned. They say, thank you for your interest, but we are waiting for a tenant who’s got a large bank balance and a house.
So, over Sunday lunch, your parents – you do have a large bank balance and a house – urge you to let them be the guarantors. They understand the risks but they have faith in you.
Nobody really talks about it, but a lot of things can happen which have nothing to do with your work ethic, knowledge, experience or demand for the product. You could fall ill. Another unexpected epidemic could decimate businesses. These are not things you can take account of.
But if these events happen, and you are out of the picture, or the business simply fails for lack of customers during lockdown, your parents will have to foot the bill. If you’ve got a lease with several years still to go, they may have to pay the rent for all those years, unless they can find someone else to take over the premises.
Even then, they will probably still be on the hook to guarantee the person who takes over the premises.
You can see how awful this could be, and how it could ruin the guarantors, your parents, through no fault of anybody.
If any of this is striking a chord with you, read the section on “Guarantors” under the “Essential Information” heading.
That will show you alternatives and steps you can take to limit the risk.
When you are negotiating to take the lease, you need a professional who can talk the same language as the letting agents to fight your corner – in other words, reduce the risks, but still get you your premises.