Offer #44872 - Don't Sign Personal Guarantees Course

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Don't Sign Personal Guarantees Course: Protect Your Personal Finances

When it comes to securing funding for your small business, you may come across a common provision known as a personal guarantee. While it may seem like a necessary step to obtain the funds you need, it's important to understand the potential risks and consequences that come with signing a personal guarantee.

What is a Personal Guarantee?

A personal guarantee is a provision in a business loan agreement that holds the owners personally responsible for the company's debt in the event of default. Lenders often require personal guarantees to mitigate their risk, especially if they have concerns about the credit history, age, or financial stability of the business.

It's crucial to note that the type of business entity you have can also impact how debts are handled. Sole proprietorships, for example, offer the fewest protections as you and your business are legally considered the same. Limited liability companies (LLCs) are designed to separate you from your business, but signing a personal guarantee on business loans, leases, or contracts means you are still liable for the debt. C corporations or S corporations, although separate legal entities, can hold owners personally responsible if they sign a personal guarantee or contract in their own name. Partnerships also have different levels of liability depending on the type.

Takeaway: If you sign a personal guarantee, it may override the protections provided by your business entity.

Types of Personal Guarantees

There are two main types of personal guarantees: limited and unlimited. An unlimited guarantee, also known as an unconditional guarantee, requires guarantors to pay all amounts due until the debt is fully repaid. The Small Business Administration (SBA) may require an unconditional guarantee from owners with a 20% or greater stake in a business applying for an SBA loan.

A limited personal guarantee, on the other hand, reduces the dollar amount, time, or percentage of the loan for which you are liable. For example, an SBA loan's limited guarantee may include options such as balance reduction, principal reduction, maximum liability, percentage payment, time limit, collateral substitution, or exemption of community property or spousal interest.

Your lender will determine which type of guarantee applies to your loan. It's important to carefully review and understand the terms before signing any agreement.

The Risks and Consequences

While signing a personal guarantee may be necessary to secure a business loan, it's essential to be aware of the potential risks and consequences involved. If your business defaults on the loan, you become personally liable for the debt. This can have several negative impacts:

Your personal credit may decline if you are unable to make the payments. Your business credit may also decline if you cannot meet the loan obligations. You could lose any collateral tied to the guarantee, such as equipment, your home, or your car. The lender can seize your checking or savings balances, including retirement savings, if they were part of the collateral.

In other words, if your business goes under, you could face severe financial consequences.

Alternatives and Strategies

If possible, it's generally better to offer specific collateral for a loan instead of signing a personal guarantee. You may also consider increasing your collateral or negotiating with business partners or other owners to share the liability through personal guarantee loan agreements. Additionally, you can explore funding options that do not require personal guarantees, such as term loans, business lines of credit, or invoice factoring.

Before signing any agreement, it's crucial to have a clear plan in place for repaying the loan in full and on time. Here are some best practices to follow:

Ask questions about any unclear language in the agreement. Avoid "continuing guarantees" that extend beyond the lifetime of the current loan. Watch out for "joint and several" language that makes you equally liable as other guarantors.

Conclusion

While personal guarantees may be a necessary step in obtaining funding for your small business, it's essential to understand the potential risks and consequences involved. Carefully review and understand the terms before signing any agreement. Consider alternatives and strategies to minimize your personal liability and protect your personal finances. By being informed and proactive, you can make more informed decisions when it comes to personal guarantees.

Money :: Affiliate Offer: Earn 40% Commission on 'Personal Guarantees' Course Sales! This course is life-changing for entrepreneurs operating regular brick and mortar businesses, where they need premises, or bank loan, or even credit cards. This course has already helped over 40,000 small business owners over the past 30 years. They safeguared their business and family future by not signing personal guarantees. And by retrieving those they had already signed. Through this course, your audience will: ➽ Gain a clear understanding of the risks and implications of personal guarantees ➽ Learn effective strategies to avoid signing them ➽ Discover proven methods to cancel existing personal guarantees, protect their assets and reduce their financial risk

Released on Thursday 27 February 2025 - Total : $3.60 - Past 30 days : $0 (1st tier : 40% - 2nd tier : 0%)

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