Business owners looking to take out an SBA loan must do their due diligence, including determining whether they are required to provide a personal guarantee. Keep reading to learn more about this important topic and get deeper insight into the SBA lending process.
What Is a Personal Guarantee?
First, let’s define what a personal guarantee is.
Whenever you take out a loan, lenders require some assurance that you’ll be able to repay it. If the lender is not confident that your business will generate enough income to pay back the loan, they may require a personal guarantee.
This means that you as business owner, will be personally liable for the loan if your business can’t pay it back. Essentially, you’re putting your own assets on the line to secure the loan.
Do SBA Loans Require Personal Guarantees?
So, do SBA loans require personal guarantees? According to the SBA website, “Individuals who own 20% or more of a small business applicant must provide an unlimited personal guarantee.”
Here, unlimited personal guarantee means that your personal assets, such as your property or savings, can be used to satisfy the debt you owe. An unlimited personal guarantee does not place any monetary limit on your liability and holds you accountable for the entire amount owed.
It’s worth noting that even if you do have to provide a personal guarantee, this doesn’t necessarily mean that you’re putting all of your assets at risk.
Depending on the terms of the guarantee, your liability may be limited to a certain percentage of the loan amount, or may only extend to specific assets. However, it’s important to carefully review and understand the terms of any personal guarantee before agreeing to it.
To learn more about this topic, check out our previous post, “Are Business Loans Secured or Unsecured?”
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At Gellyfish Commercial, we offer commercial financing solutions with the certainty of execution you need to take your business to the next level.
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