If you are looking to get your hands on a business loan for either a startup or a current business, you may have heard the term personal guarantee before. This article will help clarify what a personal guarantee is, along with some of the pros and cons associated with it.
What Is a Personal Guarantee?
The term personal guarantee is used within a legal loan agreement between lenders and business owners. The term is used to ensure repayment of business loans or lines of credit in the form of personal assets. They do not typically require specific collateral, which makes them easier to get.
In a typical scenario, these types of agreements are used for small businesses or startups who have inadequate credit history for a business loan. To increase the chance of approval on an 255 payday loan bad credit application, a personal guarantee acts as a co-signer to a business loan. In the case that a business fails and your loan defaults, you are the guarantor, and the lender has the right to come after your personal assets.
Different Types of Guarantees
There are a few different types of personal guarantees. The most common one used is an unlimited personal guarantee (unconditional guarantee). This would mean that borrower is responsible for the full amount of the loan repayment, plus any legal fees. An example of this is the Small Business Administration’s loan program. (more…)