Application and interpretation
- 1.1
This book sets out, clause by clause, the two ways a small business is given credit — against the record of the company itself, or against the signature of the person who owns it — and what each of those routes commits that person to.
- 1.2
It is written for the owner of a formed entity who is about to open a supplier account, apply for a card, or take a facility in the company name, and who has been handed an application that asks for a signature in a personal capacity.
- 1.2.a
Part 3 deals with credit extended to the company alone. Part 4 deals with credit extended against a personal guarantee.
- 1.2.b
Part 5 states how this book is written, Part 6 how it is meant to be worked through, and Part 7 what has and has not been published in this edition.
- 1.3
Nothing in this book states that either route is the better one. They are not competing products; they are two different sets of conditions, and which set a business should accept depends on the facility in front of it. Where an argument is made, it is made in words and confined to the case it is made about.
Contents
The matters this book is being written to cover, listed so you can see whether it is the right book to come back to. Nothing below is published yet, so nothing below is a link.
What a lender is actually asking for when it asks for a guarantee
The sentence in the application that moves the debt from the company to the person signing, and how to find it.
Opening trade accounts in the company name
Suppliers that bill the entity rather than the owner, and what they want to see before they will.
Business credit cards that are issued without a guarantee
Which card programmes underwrite the business itself, and what they require in place of a signature.
The same card, guaranteed and unguaranteed
Where the two routes lead to different terms on an otherwise identical account.
Releasing a guarantee once it has been given
What a release requires, why a closed account is not always the end of one, and who has to agree.
Business credit reporting, agency by agency
Who files a business record, what goes into it, and which accounts report to whom.
Glossary of terms used in this book
A plain definition for every term defined in the margin of a Part.
Credit extended to the company alone
Where the obligor named in the agreement is the entity, and the owner signs only as an officer of it.
- 3.1
A grantor taking this route is underwriting the company. It is looking for evidence that the entity exists in its own right and has met obligations in its own name.
- 3.1.a
That evidence is ordinarily separation and record: a bank account, filings and a tax identification held by the entity, and accounts already settled on terms under that name.
- 3.1.b
It accumulates in sequence and cannot be assembled at the point of application. A business that has not yet held an account in its own name has nothing to show under this Part, whatever its revenue.
- 3.2
What this route asks in place of a signature is time, and acceptance of narrower terms while that time passes.
- 3.2.a
A grantor with no recourse to a person commonly starts with a smaller limit, a shorter settlement period, or a deposit or security held against the account, and revisits those after the account has performed.
- 3.3
The consequence of default under this Part falls on the entity: its record, its remaining facilities and its assets. That containment is the reason the route is worth the wait, and it is the only thing it buys.
Credit extended against a personal guarantee
Where the entity is still the borrower, but a person has undertaken separately to pay if it does not.
- 4.1
A grantor taking this route is underwriting the person. The company's own record is still read, but it is no longer what the decision rests on.
- 4.1.a
What is examined is accordingly personal: the applicant's own credit record and obligations, and in many cases a statement of personal assets.
- 4.1.b
It is available immediately and does not accumulate. A business formed this month can obtain credit under this Part on the strength of a record built long before the entity existed.
- 4.2
What this route asks in place of time is the signature, and the exposure that the signature carries for as long as it stands.
- 4.2.a
A grantor with recourse to a person commonly opens on wider terms than it otherwise would, and the scope of the guarantee — what it covers, for how long, and how it ends — is set by its own wording rather than by the account it was signed for.
- 4.3
The consequence of default under this Part reaches the person: their record, their obligations and their assets, irrespective of the limited liability the entity otherwise provides. That reach is what the wider terms are priced against.
Rules of construction
Worth stating before there is anything to read, because these are what the writing will be held to.
Numerals are references, not measurements
Every number in this book is a clause reference or a figure read off a document that is named on the page. Nothing here is scored, rated, starred or placed in a tier, and no ranking is expressed as a number.
A statement of fact carries its authority
Terms change without notice and differ by lender, by state and by applicant. Where this book states what an agreement says, it names the agreement; where it cannot, it says what it is reasoning from instead.
Commercial interest is declared where it exists
Some links on this site earn a commission. That is disclosed on the page it applies to and it does not determine the order in which anything appears, or which of the two routes in Part 3 and Part 4 a page recommends.
Procedure
The order in which Parts 3 and 4 are meant to be applied to a particular facility.
- 6.1
Identify who the credit is being extended to
Read the application for the party named as obligor. If the owner is named anywhere other than as an officer signing for the company, the credit is being extended to the owner as well.
- 6.2
Establish what the company can show on its own
Time in operation, a bank account in the entity name, filed returns, accounts already paid on terms. This is what Part 3 turns on, and it is the part that takes time rather than money.
- 6.3
Price the signature, not just the account
A guarantee is not free because it has no fee. Part 4 sets out what it commits, for how long, and what else it may sit behind once it is given.
- 6.4
Decide for the facility in front of you, not in general
The answer can properly be different for a supplier account, a card and a term loan taken by the same business in the same month. Neither Part 3 nor Part 4 is a position to hold across all of them.
Commencement and status of this edition
- 7.1
This is a new site. No matter listed in Part 2 has been written or published, and Parts 1 to 7 of this page are the whole of it at present.
- 7.2
Nothing on this site has been tested, trialled, scored or ranked, and no such work is described anywhere on it. When a matter in Part 2 is published it will appear in the contents as a link, and not before.
- 7.3
This book is general commentary on how business credit and personal guarantees work. It is not legal, tax or financial advice, and a guarantee should be read — or read to you by someone qualified — before it is signed.
- 7.4
Some links on this site will earn a commission. Where they do, it is disclosed on the page that carries them.