A male, small business owner checking an application status online after signing a personal guarantee.

Small business owner checking his loan application.

A personal guarantee on a business loan means that you are legally bound to repay the loan or your assets can be taken from you. It’s a straightforward process that’s meant to protect credit lenders, but is it right for you? Big businesses with a lot of assets have the option to get lines of credit without signing a personal guarantee and a lot of small businesses resort to this option out of necessity. Let’s look at some of the pros and cons of a personal guarantee and see if it’s right for you.

The personal guarantee

Let’s look at the pros of a personal guarantee first.

  • Provides starting capital for a small business
  • Can use a wide variety of assets for the loan ranging from real estate to cars
  • Can open up lines of credit for continued use

Now the cons.

  • Very risky
  • Small business owner can loss personal capital as well as assets
  • Most small businesses fail to generate profit to pay the loan back

Before signing something like a personal guarantee you should go over the assets that you’re going to put up for it. If it’s something like your home, then you might want to find other ways of funding your small business. How can you educate yourself on different financial options to make sure that you’re getting the best deal for you?

The right education can make the difference

Getting the right information can be the difference between failure and success. CreditHub offers a wide variety of free and paid education to help you get the right financing options for you. They also have their own financing options like business credit lines and loans.

Conclusion

A personal guarantee is a great way for credit lenders to make sure that they get their money back. It might not be the best option for you and your small business. If you can’t pay back the loan, then you lose out on whatever assets you put up and this isn’t good. If you need some help in finding better financing options for your business then check out CreditHub here to get started.