Do I Need to Give a Personal Guarantee for a Business Loan?
By Jean Murray. US Business Law / Taxes Expert
Jean Murray has the education and experience to help you become an expert in your small business, and to provide you with information about business legal and tax issues. With an MBA and a PhD in entrepreneurship, she brings almost 30 years of experience and knowledge to these important business subjects.
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DISCLAIMER: I am not a CPA or attorney, and nothing on this site in articles, emails, blog posts, or other communications is intended to be tax or legal advice. The purpose of this site is to provide general information to readers. No claim is made regarding the accuracy or legal status of information on this site. Federal, state, and local laws and regulations change, and every business situation is unique. Readers should not take action on any tax or legal matter without reviewing options with a tax advisor or attorney.
Question: Do I Need to Give a Personal Guarantee for a Business Loan?
In these tough financial times, a personal
guarantee is almost always necessary for a business loan, especially for start-up loans.
A personal guarantee is simply an agreement you sign agreeing to pay back the loan personally if the business cannot pay. It's like you are the co-signer on the loan.
This agreement is binding even if your business is not connected to you personally, like a corporation or limited liability company (LLC). If the corporation fails, for example, and cannot pay its bills, your personal guarantee can be activated by the lender.
Why is a Personal Guarantee Necessary?
The Small Business Administration (SBA) saya. "All owners of 20% or more of [a] business are asked to provide a personal guarantee in order to obtain an SBA guaranteed loan."
Even if you don't use an SBA loan guarantee, most bankers will still require you to have a personal guarantee for your start-up loan. The bank wants you to have a financial stake in the success of the business and they want you to understand you can't just walk away from the business if it fails and leave the bank holding the bag.Source: biztaxlaw.about.com