Should You Personally Guarantee a Loan to Your Small Business?
You may not think twice about signing a personal guarantee for your business: after all, you believe wholeheartedly that your business will succeed. However, many financial experts would urge you to personally guarantee a business loan only as a last resort. After all, if your business goes belly up, you stand to lose major personal assets - most likely your house.
Before you decide to personally guarantee a small business loan, think about what a personal guarantee means. The guarantee applies only to you, not to your business partners nor to your managers. It means that you are declaring an individual pledge to make good on the loan, usually without exception. Depending on how your contract is written, you may be responsible for the loan even if your business is protected by limited liability laws. Many lenders require borrowers to personally guarantee a loan or secure it with personal assets if your business is organized as a limited liability entity.
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