You may know the ins and outs of your personal finances and how you can stay on top of them. You might even know everything about your own personal loans and debt repayments. For instance, you may have an in-depth knowledge of payday loans and how they can work for you. However, there are probably parts of business finance that you’re still a little unsure about and need to research a little more. A term that you might have heard a lot is a personal business guarantee. If you want to discover what these are and what they could mean for your business, keep reading.
When you borrow money from a lender for your business, they’ll request a personal guarantee. This is a legal confirmation from the borrower that the credit will be repaid. It also means that if you’re unable to pay it back with your business finances, you as an individual would be responsible for paying it. The point of a personal business guarantee is so that the lender can be sure they’ll receive the money back that they’ve lent out. It acts as an extra layer of protection for them, as it ensures that they’ll receive the repayments in some form or another.
Which Businesses Will Need One?
Typically, it’s smaller businesses that will need a personal guarantee, especially if you don’t have a business credit history and score. If you were to apply for a business loan without a personal guarantee and you didn’t have a business credit score, then you can use it as a way of showing you’ll be able to pay it back.
If you haven’t yet been able to build a business credit score, or your credit rating isn’t that great, you might benefit from getting finance that allows you to have a personal guarantee as collateral. Without one, you may find it hard to secure a loan and your business could struggle to recover. The chance of getting a business loan could make or break your company, so make sure you look into all the options available to you, including those with a personal guarantee.
If you’re agreeing to take on the responsibility of loan repayments if your business can’t afford to, this could have a negative impact on your personal finances if you’re not prepared. Without the guarantee, lenders will only chase the business for the repayments. But, if you’ve agreed to a personal guarantee, they’re well within their rights to chase you for the repayment until it’s received.
Things To Consider
Make sure if you agree to a personal business guarantee that you read and fully understand all the terms and conditions you’re signing. If you don’t understand part of it, get it clarified before you complete the application and become the personal guarantee.
Many businesses like the option of being a personal guarantee as it can allow them the option for finance that they might not have without it. However, it is worth researching different lenders and combing through all the fine contractual details before signing. If you’re thinking about a business loan, don’t be afraid to ask the lender questions about the terms of their personal guarantee, and you’ll be able to feel secure in your choice of finance.