Personal guarantees on commercial loans to professional companies are more and more in the news. Back in the day BEDT (before economic down turn), people didn’t really think twice about providing a personal willingness to sign on their commercial loan.
What has changed these days? Well, some of the projects are under water and upside down. Now the back is coming after the primaries and their assets- like their million dollar homes, for example. The home, outdoor living area, the pool, the bank wants it all. When someone threatens to take your primary residence, and you start worrying if your pets will have a yard to play in, it can be pretty upsetting. So these days, people taking out loans are well-aware of what signing on a loan really means or could mean to them and their families.
It is essential that a business gets adequate start up financing so that it can get going successfully. A big part of this financing is securing commercial loans from a bank or other lender. Lenders may be reluctant to finance a fledgling company, due to the inability to predict whether or not the business will definitely profit or fail. This is why many lenders require a guarantee, or collateral of some sort.
A guarantee is designed to ensure that the lender will be paid in some form or another, should the company be unable to pay down their debt. This guarantee may be in the form of collateral, like a home, business building, vehicle, or other personal property. Another form of guarantees is to have a cosigner that can provide funds if a business cannot, or the business owner can guarantee the loan with their personal cash. Personal guarantees on business loans can be a good idea in some cases, but it is imperative that one carefully consider this important decision. First, one should figure out if they have ample cash or assets available should the guarantee be put into effect. Using personal money or assets can leave one empty handed or ruin credit.
A personal guarantee on a commercial business loan may be ideal for some situations, but not others. Just be aware of what you are signing and what it could mean to you down the road.
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