Personal Guarantee
A legal commitment where a business owner agrees to be personally liable for business debt if the company cannot pay, commonly required for SBA loans.
A personal guarantee is a legal agreement where an individual agrees to be personally responsible for repaying a business debt if the business cannot.
SBA Personal Guarantee Requirements
For SBA 7(a) loans:
- Required for anyone owning 20%+ of the business
- Unlimited personal guarantee (full loan amount)
- Spouse may also need to guarantee
- Cannot be discharged in business bankruptcy
What's at Risk
With a personal guarantee, lenders can pursue:
- Personal bank accounts
- Real estate (including primary residence in some states)
- Investment accounts
- Other personal assets
Negotiating Personal Guarantees
What you CAN negotiate:
- Cap on guarantee amount
- Burndown provisions (guarantee reduces as loan is paid)
- Release triggers (e.g., achieve certain metrics)
- Carve-outs for specific assets
What you typically CANNOT avoid:
- SBA guarantee requirement for 20%+ owners
- Full guarantee during first 1-2 years
Risk Mitigation Strategies
- Insurance: Key person, business interruption
- Asset protection: Legal structures (varies by state)
- Burn-down clauses: Negotiate guarantee reduction over time
- Multiple guarantors: Spread risk among partners
Related Terms
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