Business Loans: What is a Personal Guarantee?

When evaluating potential business loans you may be asked to make a personal guarantee on the loan. There are many different types of business loans and some of them require you to make a personal guarantee before they loan you the money. Here are a few things to consider about personal guarantees and how they work. 

Personal Assets

When a lender asks you to put a personal guarantee on your business loan, it means that you will have to tie your personal assets to the loan. Many business loans allow you to keep your business and personal lives separate. With a personal guarantee, however, you are required to put your personal and business lives together. 

If the business loan goes into default the bank will legally be able to come after your assets. They could foreclose on your house, your car, and any other personal property that you might have. 

Potential Reasons for Personal Guarantees

Lenders typically require a personal guarantee when they believe your business plan to be questionable. If you are a new business, you may not have a credit history for them to look at. If that is the case, they will want to evaluate your personal credit history and approve the loan based on that. 

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