Is the guarantee still required today?
More than ever, the banks and lenders today require personal guarantees from entrepreneurs, and even from CEO’s of funded businesses. Starting and running a small or growing business can be a challenge to the most confident and optimistic entrepreneur. And the process of borrowing money or financing asset purchases can be an eye-opener for those who are not used to today’s lender and seller aversion to grant easy credit.
Start with a bank card – still with a guarantee
Most any entrepreneur with a clean credit record can obtain a bank card with a $50,000 limit, if s/he is willing to give a personal guarantee and has enough assets to back the promise it contains. As the amounts get higher or as banks get into the picture, the negotiation around a personal guarantee becomes more of an issue with the lender and the entrepreneur. As a rule of thumb, a company with a majority owner in control will be required to provide such a guarantee for most any borrowing of significant size in relation to assets.
Then what happens when there are investors?
[Email readers, continue here…] But what happens when the entrepreneur has taken investments from one or more outside investors and may not even own a simple majority of the company’s stock? To most lenders, the guarantee is still a requirement, putting the entrepreneur in a position of additional risk that is not spread among the shareholders.
All entrepreneurs assume risk when starting and growing a business. It is only smart to consider ways to mitigate risks when opportunities to do arise.
Images created with MS Designer – DALL-E 3 using prompt: “Realistic image of conference table with document in forefront and board of directors debating entrepreneur’s requirement to sign a personal guarantee.”