A personal guarantee: what does it commit you to?
A personal guarantee is a commitment by a person to repay if the business does not. The lender may ask for one, or for security on business assets; it writes it in its offer, which you are free to decline.
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- What is a personal guarantee?
- It is a commitment by a person, often the owner, to repay the lender if the business does not. Its scope is written in the lender’s offer.
- Does a lender always ask for one?
- No, it depends on the lender and on the file: it may ask for a personal guarantee or security on business assets. The security required is set in its written offer.
- How does it differ from security on business assets?
- A personal guarantee commits a person; security gives the lender a right over assets of the business, for example the equipment financed or the accounts receivable. The lender states what it asks for in its written offer.
- Do I also have to put up a building as collateral?
- No, no real-estate collateral is required; the lender may ask for a personal guarantee or security on business assets. A personal guarantee remains a personal commitment, whose scope is read in the offer.
- What should I read before signing a personal guarantee?
- In the lender’s offer: who commits, for what sum and on what conditions. We don’t give legal advice; a lawyer can explain it to you, and you are free to decline the offer.
What the lender looks at
- Actual deposits, month by month
- What the business takes in measures what it can repay by itself.
- Days in overdraft
- An account often below zero is read as a risk, which the lender weighs in what it requires.
- Payments to other lenders
- A commitment already made to another lender must be declared.
- How long the business has been operating
- With a short history, the lender has fewer months to read before it sets its requirements.
$0 upfront · 7% only if funded
An intermediary, not a lender.
The lender sets the final amount and its cost in its written offer.
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