Should you personally guarantee it?

Quick Insight

A personal guarantee occurs when a person pledges to pay back a loan if the business can’t or won’t pay it back. Ask your lender to remove the guarantee if your company's financial situation has improved since you received the loan. Another option is to find another lender that's willing to remove the guarantee.

A personal guarantee occurs when a person pledges to pay back a loan if the borrower can’t or won’t pay it back. Lenders require personal guarantees on business loans to newer or weaker companies.

Many owners set up their companies with business entity selections that limit personal liability, like LLCs or corporations. They then try to get debt for the company and have to put their personal assets at risk to get that debt. It’s a risk that’s too much for some owners.

The lender often has the right to require payment from a guarantor even if the borrower hasn’t defaulted. For example, the lender may be concerned about the future repayment ability of the borrower, so they approach the guarantor for payment sooner rather than later. This is rare but they may have that right.

Ask your lender to remove the guarantee if your company's financial situation has improved since you received the loan. A lender may not want to do this if the loan isn't maturing. Another option is to find another lender that's willing to remove the guarantee. If you find a bank willing to do this, tell your current lender you're going to move the loan if they don't remove the guarantee. That may motivate your current lender to remove the guarantee. You still have the option to move to the new lender.

I wish you the financial strength for debt without guarantees. I wish you well.

- Rob Stephens

Further Insight

CFO Perspective Resources

  •  Video: Get a Better Business Loan Rate - Just a few easy moves could save you thousands in interest and fees on your business loan. Let me show you seven tips that could lower your loan costs.
  • Video: Is an SBA Loan Right for You? SBA Loan Pros and Cons - I’ll explain some of these pros and cons to help you make a better decision. I'm not a lender, so I can give you an unbiased look at the plusses and minuses of SBA loans. You'll discover six benefits of SBA loans and five reasons you may decide SBA loans aren't right for you.
  • Course: Business Loan Basics – Get the basics on how to business loans work. I’ll show you how to navigate the loan process. You’ll also learn tips on how to get lower loan rates.

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