Loan-Guarantee Options

If you’re looking for a new-business loan, don’t be surprised when the banker leans across the desk and asks for a personal guarantee as one form of collateral. But before you sign your name or pledge personal assets, understand that all guarantees aren’t alike — and that the exact wording is sometimes negotiable, though only at the time the loan agreement is signed. Here are some of the formats owner guarantees take:

With an unlimited guarantee, the guarantor stands behind the entire loan or credit line. That means if the business defaults on, say a $500,000 loan package, you’ll be expected to personally make good on any deficiencies. You’re personally on the hook until the debt is paid. Bankers push for these guarantees in the belief that the more exposed you are, the more focused you’ll be about meeting the loan’s terms.

A limited guarantee is less encompassing than a complete guaranteed loans, making it more palatable to the borrower (and less secure to the lender). The requirements can be stiff, however. A limited guarantee usually works like this: The business gets a loan for, say, $500,000, but the bank agrees to limit the personal guarantee to $250,000. If the business can’t meet loan payments, the bank, knowing it’s not fully protected, will try to get part of the loan repaid by collecting receivables and selling assets. If, after the guarantor pays the $250,000, there’s still a shortfall, the bank will take a hit, unless the agreement specifies other pieces of collateral.

Say it’s not just one person standing behind the $500,000 loan but two or more, all individuals of means. You’d think that the lender would be satisfied if each person guaranteed $250,000, but don’t count on it. Many banks will try to set the loan up as “joint and several,” which means they’ll ask each of you to stand behind the full amount of the loan. You can try talking them out of it, but whether or not they back off will hinge on the quality of your other collateral and your overall financial strength.

Most guarantees are written to remain in effect until the loan is fully repaid. But some agreements spell out conditions under which personal guarantees can be eased or lifted. If, for example, the company has managed to meet specified performance standards for two or three years, the bank might relax its requirements or even tear up the guarantee altogether.

Share on facebook
Facebook
Share on twitter
Twitter
Share on linkedin
LinkedIn
Share on whatsapp
WhatsApp

Latest

Contact me

For any queries, training, courses or to write for my site ...
Say hello

Related

Sports Betting

Taking Sentiment Out Of Your Sports Betting Picks

Let’s quickly compare the pros and cons of betting on sports favourites. The most obvious advantage of betting on the …

Online Casinos

An Introduction to Online Casinos

Online casinos are a popular form of gambling. These online versions of conventional casinos allow gamblers to play their favorite …

Bingo

The Benefits of Playing Bingo

In the United States, Bingo is a game of chance. Players try to match numbers printed on cards with those …

Sports Betting

How To Make Money Using Sports Betting Odds

Sports Betting has become increasingly popular over recent years and is now an integral part of most professional sport. Sports …

Online Casinos

Top Tips For Playing Online Casino Games

Online casinos, sometimes called virtual casinos or Internet casinos, are online version of traditional brick and mortar casinos. Online casinos …

Bingo

Is Bingo Making a Big Comeback?

Bingo was popularly played by the older generation years ago but that is not the case anymore. Bingo originated in …

Scroll to Top