Personal Guarantee Basics

When businesses borrow money, a personal guarantee may be required. To get the loan, business owners promise that the loan will be repaid. If they can’t repay, a personal guarantee allows the lender to go after their personal assets to collect money.

Personal Guarantee Basics

Lenders always evaluate borrowers to predict whether or not they'll repay. For consumer loans, there are credit scores and a wealth of other information to help with the decision. However, businesses - especially new businesses - may not have a credit history.

• How Credit Scores Work
• Business Credit Basics

With limited information it’s hard for lenders to make a decision. If there’s any doubt, they may require a personal guarantee. By making business owner(s) - not just the business - personally responsible, lenders improve the chances of getting paid.

Without a personal guarantee, many small businesses can’t get loans. Lenders will wonder why they should take a risk if you’re not willing to put skin in the game.

What's the Risk?

When you provide a personal guarantee, you allow a lender to go after your personal assets if you can’t repay a business loan. The business may be incorporated to limit your liability, but that protection doesn’t help with a personal guarantee.

If you’re considering a personal guarantee, learn more about the risks:

• Keys to Personal Guarantee Business Loans
• No Business Credit Without Personal Guarantees?