Personal Guarantees For Minnesota Small Business Owners

I frequently encounter small business owners who have signed personal guarantees in order to obtain business credit. Many lenders require these personal guarantee agreements in order to approve the loan. Some lenders will even request a secured interest in personal belongings such as a car or home before approving loans. In many cases these personal guarantee agreements are not a good idea for the borrower. If you are starting a small business and the lender is requesting that you pledge your own assets as collateral or sign a personal guarantee you should consult an attorney to determine what rights you are signing away with these agreements.

In many cases if the business fails and is no longer to meet the obligations of the loan the lender will then turn to the individual who personally guaranteed the loan to collect the outstanding balance. This often results personal bankruptcy filing to discharge the personal obligation from the business loan. The personal bankruptcy filing could have been avoided if the personal guarantee would not have been signed. The clients who I meet who do not need a personal bankruptcy after a failed business generally are the clients who did not sign these personal guarantee agreements and did not pledge personal assets as security for the loan. Lenders will continue to request these agreements, since they help ensure payment of these small business loans. It is important to read all documents before signing, since you never know what kind of trouble you can get into with just a signature.