What is a Loan with Personal Guarantee?
Is your business credit rating strong enough to help you secure a loan for your business instead of using a personal guarantee? You have no doubts that your new business is going to succeed and grow rapidly and paying off your start-up loan will be easy with all the revenue coming in, so you personally guarantee a business loan.
But before deciding to make a personal guarantee on a business loan, you need to know the meaning of a personal guarantee. As the word personal refers to just you, so does this guarantee. Your business partners are excluded in this loan. You are guaranteeing that you will make good on the loan. Many money lenders will require that a personally guaranteed loan is secured with a personal asset, such as your house, if your business is registered as a limited liability entity.
But what happens if your business does not succeed? You may be responsible for the loan even after your business has been dissolved. Some borrowers require a cosigner. In a personally guaranteed loan, if you are the cosigner, the creditor will chase you for payment if the business fails to make the loan payments on time.
Even if a loan is not a personal guarantee loan, it carries a risk. If your business is a general partnership or a sole proprietorship, lenders may have the right to sue you personally. The lender can confiscate your personal assets to satisfy the payment of the loan if they can sue you successfully. Then there are some loans where your spouse may be required to cosign the note if you are married. Possessions that are jointly owned are then on the line for the debt of the loan.
Generally, money lenders see a personally guaranteeing loan as demonstrating a high level of personal commitment to your business, and chances of the lender securing the loan are good.Sometimes you have no choice but to personally guarantee a loan. For your information, the Small Business Administration (SBA) requires all loans that they guarantee to be personally guaranteed by any person with a minimum of 20 percent interest ownership interest in the business.
The loan may also be guaranteed with some of the assets that are owned by the business. What may be included are some personal assets such as a second home mortgage. You need to be aware that if your business does not succeed, the time will come when your creditor would be calling you to make good on the loan.
If you are looking for business funding without the need for a traditional personal guarantee, go to this page to apply online.