Depending on who you listen to, a personal guarantee is either no big deal or a guarantee forged by demons in the fiery depths of Mt. Contract. That can skew your view a bit.
Today, PointBlank is here to explain why a personal guarantee for a lease or loan is nothing to fear. In fact, signing a personal guarantee can lower the costs associated with your lease and save you a lot of headaches. Unless you’re extremely likely to default—in which case we’d caution you to strongly consider your options before getting a loan in the first place—a personal guarantee is actually quite beneficial if you need a business loan.
It wouldn’t do to leave it at that, especially if you’ve heard horror stories. So let’s go through why a personal guarantee is no bogeyman…er, guarantee. Hat tip to Direct Capital’s Matt Sullivan and Scott Lynch, who provided some of this helpful advice.
4 Reasons You Should Embrace The Personal Guarantee
- A personal guarantee on a lease ensures there’s no hits, pings, dents or cracks in your personal credit unless you default. Without one, you may not get so lucky.
- In the case of equipment leasing, which nearly every small business will need at some point, Sullivan notes that the guarantee is limited to the amount of the lease. While it would still be painful if you defaulted, the company would be limited in what they could recoup from you. That should give you a little peace of mind.
- If you’re a small business owner and you’re critical to the success of your business, a personal guarantee goes a long way toward reassuring lenders. For example, “Bizowner & Sons” would be in rough shape without Bizowner, as Sullivan said to me.
- Ultimately, loans have risk associated with them. I’m not going to pretend you get a free pony with every equipment lease and that nothing bad will happen ever, because there is risk. What a personal guarantee does is reduce that risk, reduce the cost of the loan and ensure that you assume the loan responsibility if your business can’t.
If you’re certain you can make it through the loan without a default or you’re able and willing to put your assets up, you will get a better deal on your loan every time. That’s the magic of a personal guarantee, and that’s why you shouldn’t fear it.
Tell us about your experiences with personal guarantees in the comments.
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