What Is a Personal Guarantee When Applying for a Business Loan?

Have you been asked to give a personal guarantee when applying for a business loan? If so, you might be wondering how a personal guarantee works. Business loan applications often contain multiple pages of terms and conditions that are confusing and difficult to understand. But the concept of personal guarantees is fairly simple. By understanding what a personal guarantee is and how it works, you can choose the right funding solution for your business.

What Is a Personal Guarantee When Applying for a Business Loan?

Overview of Personal Guarantees

A personal guarantee is an agreement between a lender and a business owner stating that if the business owner fails to pay back the money owed according to the loan’s terms, the lender can go after his or her personal assets.

When you give a personal guarantee, you are committing yourself to paying back the business loan. If you don’t, the lender can seize your personal assets.

It’s important to note that a business loan is still considered an unsecured loan even if it requires a personal guarantee (and assuming it doesn’t require any collateral).

Why Banks Ask for a Personal Guarantee

Many banks ask for a personal guarantee when applying for a business loan because it mitigates the financial damage caused by default. If a business owner defaults on his or her loan, the lender can sue for his or her personal assets. Without a personal guarantee, lenders can only go after the business’s assets if the loan isn’t repaid.

How Common Are Personal Guarantees

Personal guarantees are very common with banks as well as alternative lenders. In fact, all Small Business Administration (SBA) business loans require a personal guarantee.

Should I Give a Personal Guarantee?

Whether or not to give a personal guarantee when applying for a business loan is a decision that only you can make. If your business is established and is generating strong profits, a lender may offer you a loan without requiring you to sign a personal guarantee. But if your business is still new and hasn’t gained a strong foothold in its respective market, a lender may only offer you a loan if you sign a personal guarantee.

Signing a personal guarantee isn’t necessarily a bad thing. On the contrary, the lender may offer you lower interest rates if you do so. Just remember that exposes your personal assets to your business’s liabilities. As long as you pay it back, though, your personal assets will be safe.

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.