There have been many articles written on the topic of the “Personal Guarantee” as it relates to commercial loans. Traditionally, when a business owner comes to a bank requesting a commercial loan, one of the requirements is the owner’s Personal Guarantee. In a nutshell, the bank wants the owner’s promise that if the business fails to generate enough income to repay the loan, the owner(s) will step up and make sure the obligation is satisfied.
This requirement is often a sticking point in the negotiation process. Business owners are reluctant to put their personal assets on the line and banks are reluctant to provide financing when it appears the business owner doesn’t fully stand behind his/her business.
In some cases, the Personal Guarantee may not be required. If the business has been around for a long time with documented financial strength or if there is a significant banking relationship already established, the bank may forgo the Personal Guarantee. For small businesses that have only been around for a short period of time or have a history of financial ups and downs, banks will, in all likelihood, require the business owner(s) to sign a Personal Guarantee.
This document is a promise to repay the company’s debt and to insure the bank’s interests are protected. There are no liens filed and no collateral pledged.
However, if the business income cannot support the debt, or the business goes under, the owner(s) need to be prepared to utilize personal assets to repay the loan.
Banks want to help you. We want to see your business succeed. We also want the same commitment from you that you expect from us. We believe in you and your business.
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