Personal guarantee for Small Business

A personal guarantee is when a person agrees to be responsible for taking on debts of another person or company, in case the borrower failed to repay money borrowed or defaulting on a loan or mortgage. This provides back protection to the bank or other lending institution and gives them another way to go if the original borrower fails to live up to their obligations.

Many lenders ask for a personal and corporate guarantee, when the initial application for a loan or a mortgage, or when they have doubts about the ability of borrowers to repay the loan. It 's very common, such as for a bank to request a personal guarantee from a parent or guardian when a young man borrows for their first car and is also fairly common practice when it comes to first or business loan request credit from a small company.

These types of loans are considered higher risk by banks and then they want some assurance that they will have added their money back if the child breaks up the car or small business goes under. Neither would be an extremely rare event and the banks have learned very well how to protect their interests with the collection of their interest rates.

In the case of commercial loans and lines of credit, the individual owner or operator is often asked by the bank or financial institution to put their personal guarantee to secure the necessary funds. This could mean the allocation of a portion of their property or assets to the bank or it may come in the form of a guarantee in real money. It should not come from the person and a personal guarantee, however, can be provided by a family member, friend, or another businessman in the community.

Although it may seem a bit 'unfair to the borrower should be asked the bank to provide a personal guarantee that actually allows both parties to get what they want. The small business operator obtains the funds they need to stay in business or make the necessary improvements, while the bank obtains insurance that will get your money. It 's just another way of doing business.

A personal guarantee is a sign for the bank that a small business owner is ready to support its activities with your own money or have standing in the community as someone else will take this certainty and assurance on their behalf. A personal guarantee comes into play if the borrower can not pay back the borrowed money and in that case the company must be either poorly managed or ultimately unprofitable. The best way to avoid that scenario is for the small business owner to ensure that their business is a success. Then the entrepreneur, the guarantor, and the bank will all be happy .......