When a business is brand new, it is common practice for anyone extending the company credit to ask for the owners to sign a personal guarantee. Banks, Landlords, Suppliers and almost anyone that may extend credit to your company might ask you to sign on the dotted line. It is understandable that creditors want extra assurance that they will get paid since you are a new business and have no track record.
If all goes according to plan your company will pay its obligations in full and the personal guarantee will never become a factor. Let’s face facts most people’s lives and certainly a business never goes exactly as planned.
It is important to keep track of all the personal guarantees which you have signed. Of course, if all things are equal, chose the creditor who does not require you to sign one. One option to explore when signing a commercial lease is to sign a good guy clause as opposed to a personal guarantee. If you sign a good guy clause, the moment you move out of the space and hand the key back to the landlord your liability for any future rent will end.
You will only be personally liable for the rent up until the point you move out. With a personal guarantee, you will be liable until the lease end and if you have several years left on the lease this could amount to a considerable amount of money. If you are personally signing a bank loan acquire as to whether or not the bank will let you sign a limited personal guarantee. For instance, if you are taking out a loan for a half million dollars, see if the bank will let you guarantee $300,000 of the loan. The bank will know you are on the hook for a great deal of money but maybe if you go out of business you will not have to go personal bankrupt.
The most important point is to be aware of your potential downside and be cognizant of your options. Remember if you have personal guarantees and the business fails all of your personal assets may be lost as well.
In the event that your business starts to experience financial problems, please consult with a company who specializes in commercial debt reduction. Business Advisory Center is a specialist in commercial debt reduction. If you find your company in a position where your company is being hounded by collection agencies and attorneys who are not only taking action against your business they are naming you personally in the lawsuit it is time to ask for help from a professional.
Since 1997, Business Advisory Center is an expert in settling Creditor’s claims. Our average savings is between 22 and 50% of the amount due with payment terms on the reduced balance-usually 3 to 12 months. When you engage a professional debt settlement company not only you are able to improve your company’s cash flow but also settle prior to a creditor from exercising their right to recover from a debt which you had personally guaranteed.