Should You Put a Personal Guarantee on a Loan for Your Small Business?

One of the most difficult obstacles faced by small business owners is getting approved for funding. Although they can be a little risky for you as a business owner, personal guarantees may be a way for you to get a small business loan to continue growing. Here’s what you need to know about personal guarantees and how to utilize them for your small business.

What Is a Personal Guarantee?

Personal guarantees are a written agreement between a borrower on a business loan and a lender that states that the business owner will be personally responsible for the loan. If the business is unable to repay the loan, the business owner will pay it back themselves.

A personal guarantee sometimes involves a business owner pledging their own personal assets in order to receive the loan. Many very small businesses, as well as start-ups, won’t be able to get a loan without agreeing to a personal guarantee.

When Should You Use a Personal Guarantee?

Personal guarantees are a way that small businesses can get funding when other options are not available. If your business doesn’t have much financial history, a lender may not be willing to give you a loan unless you can prove that you would be willing to repay it personally. With a personal guarantee, you may be able to get a loan to open or continue operating your business.

What Are the Risks of Personal Guarantees?

The challenge of personal guarantees is the liability of them for business owners. As the guarantor, if your business is unable to pay back the loan, you will have to pay it back yourself. Personal guarantees remove the separation from businesses and business owners, which can be financially risky for the business owner.

Conclusion:  A Personal Guarantee May Help You Get Funding

Although personal guarantees can be risky, they can also open the door to funding for small business owners to get the funding they need. If you’re looking for more funding options for your small business, you can also check our state-by-state grants and loans list.