Guarantee

4 Tips for Negotiating a Personal Guarantee


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How to Negotiate a Personal Guarantee

If you get a loan from a bank or private lender for your business, you will probably be asked to sign a personal guarantee that puts your own assets — such as real estate, savings, or other valuables — on the line should your business be unable to pay the bank back. Many business owners are so relieved to get the loan that they don’t read the fine print that puts them at risk. You should. And, you should attempt to negotiate.

To be sure, not every entrepreneur will be successful in negotiating the terms of the personal guarantee, especially if you’re just starting a business. “Those that will be most successful will be those who have three to five years experience and have survived this most recent [credit] crisis,” says Jim Coughlin, the chief underwriting officer for Asterisk Financial, a personal guarantee insurance company

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What You Need to Know About Making a Personal Guarantee

Personal guarantees are among the aspects of financing a small business that entrepreneurs love to hate. If you’re seeking a small business loan, you might be asked to provide a personal guarantee of the loan, either in full or part. In fact, laying one’s own finances on the line is a common expectation today.

 

A personal guarantee, almost by definition, is unsecured, which means it is an amount not tied to any specific asset such as a residence. By making a guarantee, however, you are are putting yourself – and your assets – on the hook, by acting as the loan’s cosigner. If your business dissolves, you will be responsible for repayment. Creditors will go after you in the event that your business fails to repay the loan.

The Small Business Administration now requires that all loans it guarantees must also be personally guaranteed by anyone with a 20 percent
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Personal Guarantee

What Is a Personal Guarantee?

A personal guarantee is an individual’s legal promise to repay credit issued to a business for which they serve as an executive or partner. Providing a personal guarantee means that if the business becomes unable to repay debt then the individual is personally responsible. The personal guarantee provides an extra level of protection to credit issuers, who want to make sure they will be repaid.

Understanding Personal Guarantee

A personal guarantee can be used in a credit deal to secure funding for a business. Small business founders and executives will often use a personal guarantee since they have a vested interest in the launch and business development of a company. Oftentimes small business owners and executives will make a substantial initial investment using their own capital. To obtain additional capital executives can also seek funding with the backing of a personal guarantee. This requires the

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