Higher interest rates: The impact on personal guarantees

March 1, 2023

Interest rates for consumers, businesses and the government were already on the rise before last September’s disastrous mini-budget pushed them too close to the financial stratosphere. Fortunately, they have come back from those unsustainable highs, but interest costs are still well above what they were a year ago.

The timing of this rise is less than ideal. It is set against the sharp increase in debt levels which occurred during the pandemic. And it comes as the UK economy has ground to a standstill, with zero GDP growth in Q4 2022. With these combined challenges, it is perhaps not surprising that official figures show that 59% of the companies that filed for insolvency in 2022 had taken out a Bounce Back Loan.

Can you meet the increased repayments?

Fortunately, some of the government-backed debt taken on during the Covid crisis carries fixed interest rates. But many companies with overdrafts or variable rate loans will have seen their repayments increase. The first question business owners should be asking is whether they can legitimately meet their debt obligations any longer, without delaying payments to other creditors.

The stalling housing market

Property search site, Rightmove, has reported that the average UK house prices rose by just £14 in January 2023, the lowest since it began collecting data in 2001. Many property experts are predicting that they will fall this year, with a consensus forecast of a 10% drop. Higher interest rates will not only push up repayments, they can also damage the value of property too.

What will this mean for a Director’s Personal Guarantees?

The implications where a personal guarantee is backed by the value of a Director’s residential property could be stark. If the house price correction reduces the protection the guarantee gives the lender by enough to make them uncomfortable, it is possible the business may have its facilities reduced and the relationship with the lender may come under serious strain. This could place Director’s in the concerning position of needing to provide extra security and not being able to.

Would re-financing solve the problem?

The simple but uncertain answer is: maybe. Finding a new lender in the current economic climate will be a challenge, but this is not necessarily impossible. However, approaching a potential new funding source is unlikely to be fruitful without comprehensive and up to date financial data and a pitch based on realistic assumptions that highlights the positive aspects and prospects for the business.


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Approaching an expert could help you to move forward

Most business owners and their management teams have enough on their plate right now, never mind finding the extra bandwidth to put together a financial package at short notice and scour the market for a replacement lender. This is where approaching a specialist can make all the difference. They will have relationships with other finance sources and will know ‘the art of the possible’ with each of them, as well as how to pitch to them. Having the right adviser at your side in discussions with these sources will add that vital extra credibility. That adviser could be your current accountants, a specialist finance broker, or maybe both working together.

Act now, not later

The sooner a start is made on addressing cash flow issues and securing stable funding, the better the options will be. Leaving these decisions late could increase the risks of building creditor pressure overwhelming the business.

Entrepreneurs are driven by confidence and optimism. But the unfortunate fact is that with so many adverse factors affecting the economy, waiting for something to turn up could prove costly. Acting now and not later is the key.

How we can help

We have extensive experience advising business owners on business financing and personal guarantees, and we will always work with you to find the best solution for you and your business.

One of our Partners would be more than happy to have a non-obligatory confidential chat with you. We can be contacted at rescue@opusllp.com or call us on 020 3326 6454 and we will arrange for a call with one of our Partners.



Opus is authorised and regulated by the Financial Conduct Authority. If you are looking for advice in relation to personal debt, click here to understand more about all options available, the pros and cons for each and fees relating to our services. If you have a complaint, click here for our procedure.

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