5 things to know about personal guarantees. 1 webinar to limit your financial risks.
In today’s tight credit markets, more and more banks require personal guarantees (PG) from applicants for business loans. A PG is just like it sounds – a personal promise to pay the business loan. This promise allows the bank to pursue the guarantor’s personal assets as an alternative source of repayment for the business loan. At stake are all the assets a business owner has worked hard to accumulate, including a house, savings accounts, second home, boat, cars, etc.
Unfortunately, 65% of business owners know someone who has lost personal assets as a result of a PG being called by a lender. Avoid this statistic by obtaining a better understanding of what a PG is (below), and then attend our June 21 webinar to learn ways to mitigate the risks associated with signing one.
Background on PG
1. What is a guarantor? A guarantor is anyone who signs a PG, pledging personally to repay someone else’s obligation. This pledge can be secured or unsecured.
2. Who is required to sign a PG? Typically, a guarantor is an individual or entity with a relationship to the business borrowing money. This can include, but is not limited to: the owners of the business or real estate, their spouses, and other family members as well as related corporate entities.
3. What about spouses? How are they impacted? If you are married, your spouse also may have signed a personal guarantee. In that case, should the business fail, your jointly owned possessions are on the line for the debt, as well as your spouse’s assets and income. If your spouse did not sign a personal guarantee, their individually owned assets are not impacted; however, your jointly owned assets may be subject to legal actions taken by the bank.
4. Are business owners concerned about the potential impact when a personal guarantee is called? Yes. According to independent research commissioned by Asterisk Financial Group, 75% of business owners with personal guarantees have calculated the personal financial cost if it was called by their lender. This means that most business owners have tried to determine what the impact on their lifestyle would be in this worst-case scenario.
5. What if I’ve exited the business? Am I still liable for the personal guarantee? Yes. The guarantee agreement remains enforceable until the obligation has been fully repaid or the bank releases a guarantor. Typically, the bank only releases you from your personal guarantee obligation when the loan is paid off, even if you’ve moved on.
Webinar on Limiting the Risks of PG
Now that you’ve got a better background on what personal guarantees (PG) are, it is pertinent that you understand how it can affect both your finances and assets. In June, Assurance University hosted a PG webinar with Burns and Wilcox that highlighed risk management solutions, such as Personal Guarantee Insurance™. For a copy of the webinar, please click the below “Speak to an Assurance representative to receive more information” link.