It is often standard practice for a lender or finance provider to require a personal indemnity or guarantee and indemnity from the directors of a company when providing finance. Giving an indemnity is promising to compensate someone for loss they suffer.
- sometimes the indemnity will be limited to a monetary value, or will only relate to loss caused by specific triggers, such as a breach of the finance agreement. In other cases it will apply broadly to any loss suffered to the indemnified party (usually the lender) as a result of it entering into the loan agreement with the business;
- in such cases, it is essential that the indemnifying party is comfortable that they understand the liabilities they are providing the indemnity for. When providing an indemnity or guarantee for the borrowings of a business, the indemnity will usually be a personal indemnity for what the lender cannot recover from the business.
In a commercial loan agreement
There is often a general indemnity clause in loan and finance documentation, through which the borrower gives an indemnity, promising to compensate the lender for any extra costs or losses they suffer as a result of certain events. In practical terms, this means that the legal costs of varying the agreement or obtaining consent from the lender, and any costs of enforcement will be payable by the borrower. This is in addition to any other financial obligations contained in the loan agreement.
The commercial finance team at Francis Wilks & Jones are skilled in advising on indemnity and guarantee obligations. They know what is normal and what is not. Make sure you know what you’re signing up for – call today for an expert discussion.