Personal Guarantee Basics
A personally guaranteed loan ties your personal finances to the business. With your own assets and income at risk, the bank knows you’ll make repayment a priority. Even if the business fails, they can make up the difference by going after you personally.
Learn about the basics of personal guarantees.
Risks of Personal Guarantee Business Loans
You may find that a personal guarantee business loan is the only loan available. If that’s what it takes to get you up and running, evaluate the risks before moving forward.
The main risk is that lenders can go after your personal assets if you fail to repay. Depending on your loan, they may be able to foreclose on your home or sell investments.
Your personal guarantee for the business loan may affect your family. Losing the house is obviously a problem. Some loans may also require your spouse’s guarantee so assets held solely in your spouse’s name are fair game as well. Otherwise, you might be tempted to transfer assets to your spouse.
Paying for Partners
You may be on the hook for more than your fair share if you see the term 'joint and several'. This allows the bank to try to collect the entire balance from any and/or all partners who personally guaranteed business loans. If other partners can’t pay, the bank may demand the entire balance from you.
Manage the Risks
Over time, you’ll want to move away from personal guarantee business loans. Once you build credit for your business and gather assets for collateral, you can stop guaranteeing loans.When You Can’t Get Business Credit Without Personal Guarantees.