There’s no let-up in lender demand for personal guarantees as security for small business loans. So faced with this Hobson’s choice and a future that’s predictably uncertain, what are the pros and cons of signing that guarantee?
On the plus side…
You’re significantly more likely to get that loan! You may well reach the conclusion it’s a risk worth taking to get that finance for business growth and give it a new lease of life. If you do, it may be possible to negotiate the percentage of the loan you should guarantee. At the very least, make sure you’re armed with all the facts and potential risks of signing a personal guarantee.
On the risk side…
No matter how optimistic you are about the future prospects for your business when you sign a personal guarantee, a whole host of factors can scupper your plans, from the economy and late payment to legislation.
If things do go wrong and a claim is made under the guarantee, you and any other guarantors will be liable to pay the company’s debt and all your personal assets will potentially be on the line. If your personal assets don’t cover the debt, you may be made bankrupt.
A minority stake holding in the business won’t protect you either.
Read our related blog: Considering raising finance for your business?