Thursday, April 28, 2005

Personal Guarantee...................Can you tell me what it means to me!

We are just in the process of putting together a small deal for a client when the topic of personal guarantees came up.

And as a total surprise to me, the potential borrower didn't have an issue with putting his personal guarantee on the capital he is looking to borrow. Typically, this is always a bone of contention with borrowers and lenders.

Borrowers take the position that their business is "no risk at all" and lenders take the position that "if your business is no risk, you shouldn't have a problem putting your name on the loan".

The long and short of it is that for most smaller borrowers, in most situations, there will be personal guarantees involved. Yes there are exceptions to the rule, but typically when they occur, the cost of funds will be higher.

Putting your guarantee on a loan give the lender confidence that you have some faith in the business. Arguing about it typically puts up red flags and makes lenders hesitant about doing the deal .


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