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Unlimited vs Limited Personal Guarantees: What’s the Difference?

Many lenders require borrowers to make a personal guarantee when applying for a business loan. If your business is still in its early stages, it may not have any credit. And a lack of credit can make it difficult to obtain a business loan. Lenders, however, may offer you a business loan if you’re willing to make a personal guarantee. There are unlimited personal guarantees and limited personal guarantees, both of which are used for business loans.

Unlimited vs Limited Personal Guarantees: What’s the Difference?

What Is an Unlimited Personal Guarantee?

An unlimited personal guarantee is a promise to repay a business loan using all of your available personal assets if necessary. Lenders may require it as a form of insurance. You’ll keep your personal assets as long you repay the business loan. Defaulting on the business loan, though, will allow the lender to recoup the cost of the unpaid funds in court.

What Is a Limited Personal Guarantee?

A limited personal guarantee is also a promise to repay a business loan using your personal finances, but it places a limit on how much the borrower can recoup. Limited personal guarantees are used for the same purpose as unlimited personal guarantees. They provide lenders with insurance. The lender can take the unpaid funds from the borrower. Limited personal guarantees simply have a cap.

Differences Between Unlimited and Limited Personal Guarantees

Unlimited and limited personal guarantees are both promises that borrowers make to lenders. The difference is that unlimited personal guarantees aren’t capped, whereas limited personal guarantees are capped.

Because they aren’t capped, unlimited personal guarantees are riskier for borrowers. If you make an unlimited personal guarantee, you are giving the lender the right to claim your personal assets if you default on the business loan. The amount that the lender can claim won’t have a fixed or set limit. Rather, the lender can take your personal assets in the value of the unpaid amount plus interest and other fees.

Limited personal guarantees are capped. In other words, they place a fixed limit on how much of the business loan you are personally liable to repay. Some business loans have a maximum liability A maximum liability is a dollar amount that you are personally liable to repay. If you default on the business loan, you won’t lose more in personal assets than the maximum liability.

This article was brought to you by Intrepid Private Capital Group, a Global Financial Services Company. For more information on startup and business funding, or to complete a funding application, please visit our website.

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Intrepid Private Capital Group • August 5, 2022

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