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Personal Guarantees and Your Business

February 3, 2010 by Leave a Comment

Operating and growing a business often requires injections of cash to provide the working capital for expansion in staff, equipment, and market promotion campaign or to just get through a tight business climate and preserve essential resources. Depending upon your source for credit you may be asked to make a personal guarantee. Despite your confidence and enthusiasm in the ability of the business to bear the repayment of the loan and associated debt service consider the following 5 tips (see 5 Steps: A Personal Guarantee and Your Business (and Future ) to protect your self and your business.

  1. Know the risks. Understand what you will risk in the personal guarantee.
  2. For business partners, a new meaning to “one for all.” Make sure that all partners share the same liability if the debt cannot be repaid.
  3. Beware the “clause” & effect. Know what the impact of changes or “flexible” alternatives to loan elements as such as determining interest rate over the term of the loan can have to you.
  4. Don’t gloss over the fine print. Understand what the fine print says. Use a lawyer to interpret the legalize. You do not want a surprise if things go bad.
  5. You can’t run. You can’t hide. So don’t! Bankers do not like surprises. Don’t let them learn of a problem from someone else other than you. Don’t let your bravado hide the true condition of your business. Be transparent on what you are doing if a problem situation and build their confidence in you.

Borrow wisely and take the time to exhaustively determine what range of liabilities you are obligated to in your loan agreement.

Filed Under: Bank, Cash Flow, Credit, Debt, Financial Management, Leadership, Loan, Organization, Working Capital

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