Should I Personally Guarantee a Business Loan?
Most people wouldn't think twice about signing a personal guarantee for their business. However, most financial advisers and business attorneys advise to only do so as a last resort. The reason being, you stand to lose a lot more than your business and any assets it may hold. You, as the guarantor, could lose personal assets such as your home.
Perhaps the most important factor to keep in mind is that the guarantee will only apply to you, not to your partners or managers. It means that you are pledging to make good on the loan. In some instances, you may be responsible for the loan even if your business is protected by limited liability laws. Therefore, when you sign a personal guarantee, you are acting as a cosigner on the loan. As such, creditors are legally entitled to come after you in the event the debtor, your business, defaults or misses a payment.
A lender may also seek to have your spouse sign the guarantee. This would put all marital assets at risk of seizure/liquidation by the creditor. However, most states allow for protection against such actions through various innocent spouse provisions.
Guaranteeing a loan for your business demonstrates a strong level of personal commitment to your business, which can provide the incentive to convince a bank to loan you the money. In some instances, however, you may not have a choice. The Small Business Administration (SBA) requires that any loan they provide must be personally guaranteed by every person with a 20 percent or larger ownership interest in the business.
For more information, please contact Wood, Atter & Wolf, P.A., in Jacksonville and Ponte Vedra Beach, Florida.
