Earlier this week a LinkedIn question inspired me to write a post about personal guarantees, and whether a personal guarantee was enough to protect a company’s credit risk. It’s not the first time I talked about personal guarantees, nor is it the first time I talked about protections available to companies that is not a mechanics lien.
Mechanics lien rights and bond claim rights are not the only game in town when it comes to managing credit risk. Great credit managers and controllers know this, and they have an intimate understanding of different protective devices like the personal guarantee, joint check agreements, letters of credit and more.
Yet it is shocking how many credit managers understand all of these devices but place little importance on the mechanics lien. The one thing that great credit managers know that keeps their companies in the black is that their mechanics lien rights should be given paramount importance, and diligently protected.
The reason is simple.
Every single tool available to credit managers is some form of security. Those signing a personal guarantee are using the individual’s credit worthiness as security for the company’s debt. The joint check agreement is using the solvency of the general contractor as the security for the debt. It’s all just security.
In comparison to other options, it’s clear that the mechanics lien is the superior security instrument for those working on a construction project. Period. It ties in multiple parties to the debt, it attaches to the project jobsite itself and uses the property as security for the debt, and more. A lot more. Read, for example, the 17 Ways A Mechanics Lien Works To Get You Paid.
Zlien works with controllers and credit managers across the country to help them manage their mechanics lien rights and preliminary notice requirements. Learn more about Zlien’s services for controllers and preliminary notice program here.