Why we don’t like personal guarantees – Legal issues that can undermine your business performance

Sales and quality of product or service are always on the forefront of your business mind. But unaddressed legal issues can undermine your business performance.

Today’s issue:

Personal guarantees can support your business’ application for a line of credit or a mortgage on commercial property. They are commonly requested by banks and other lenders.

In my advice to my clients, I point out that personal guarantees undermine the entire point of the corporate or LLC entity, which is to insulate business owners from the risks of the business. It is the job of the lender to evaluate if the business venture itself is a sound recipient of the loan.

That is our first argument in pushing back against personal guarantees on business loans.

If the lender will not relent on the demand for a personal guarantee and our client still wants to go ahead and give a personal guaranty, we advise our clients to ask to carve certain key assets out of the personal guarantee – for example, a home or key savings accounts – that if lost, would wipe out the client’s financial present and future. That way they will have to pay back the loan and sell off other properties and investments but will have protected certain core assets from the personal guarantee.

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