Getting a loan or line of credit can be a great way to grow your business. But these financing tools often come with requirements that can put an entrepreneur in a tight spot. The most prominent of these requirements is the personal guarantee, which most banks insist on when giving out business loans.
At Lighter Capital, our approach to lending is geared to be as entrepreneur-friendly as possible. We like to reduce borrowers’ risk and maintain their control and ownership of their company — and the rest of their assets. That’s why we never require personal guarantees from our borrowers, whether for revenue-based financing, term loans, or lines of credit.
Our stance on personal guarantees is only one of the many reasons entrepreneurs tend to find our funding options more appealing than traditional business loans. Our side by side product comparison displays each of their unique funding structures, providing a better understanding of how we differentiate from a traditional bank and helping you determine which option is best for your company.
What is a personal guarantee on a business loan?
A personal guarantee is an agreement obligating the borrower to pay back their business loan personally if the business cannot do so. Almost all lenders of business loans require personal guarantees, so most business owners who take out out a loan will have to sign the agreement and most likely aren’t even aware it may not always be necessary.
As part of the personal guarantee agreement, a lender can take possession of many of a borrower’s personal assets if the borrower fails to pay back their loan.