Why You Need Personal Guarantee Liability For A Business Loan
Currently, many companies are facing financial problems. Getting a loan is one of the ways you can get financial help for your business. A business loan is a risk for the lender because the borrower might fail to repay the full amount. Therefore, before they approve your loan, a lender will take some steps to ensure that you repay the loan.
To minimize the risk, a lender needs to believe that the chances of you repaying the loan are high. Hence, most lenders will want proof that your business has a strong credit profile and is financially sound. Your lender may want to know whether you can be able to pay the loan personally if the company fails.
1. What Is A Personal Guarnatee
This is an agreement that you sign agreeing to repay the loan personally if the business is not able to pay. A personal agreement is binding even if you have no connection with the company like a corporation. For instance, if the corporation cannot pay bills, a lender can activate your personal guarantee. This agreement may be required from you as a business owner, even if it is a separate legal entity.
Do you live in Singapore and need a business loan? There are reputable Singapore business loan companies such as MPM Capital Singapore, who are there to help you. They offer loan packages designed for your business. They can provide you with a business loan with a low-interest rate and processed within the shortest time. Their loan will help you get ahead of your competitors during this challenging moment. Contact them today for a business loan and enjoy their services.
2. So, Why Do You Need Personal Guarantee for A Business Loan?
- A business loan requirement
When you request for a business loan, the lender will most likely start by reviewing business records to determine your ability to repay the loan. They may need to go through the bank statements and tax returns.
The lender may also review the business and your personal credit score and reports. If you satisfy all lender's loan requirements, they may ask for one more concession from you so that they approve your business loan- a personal guarantee.
- You Can Get A Loan More Easily
It is easier to get a business loan when you sign a personal guarantee. This is because the agreement makes the transaction less risky for lenders since they still have an avenue to recover their money if you fail to pay.
- Get Favorable Terms
When there is a personal guarantee in place, the lenders can offer a more favorable interest rate as well as the repayment terms. However, when there is no personal guarantee, the lenders raise their interest rate making the loans more expensive so that they can reasonably manage the risk.
3. What Can Secure A Personal Guarantee?
You can use personal assets such as your home equity, car, land, and so on as a personal guarantee. The agreement requires you to promise to repay the loan even when the business cannot pay.
4. What Happens If You Have No Assets?
Well, if you do not have any assets, the lender may want you to sign an unsecured personal guarantee document. However, if you have some assets, you may have to pledge them and allow lenders to use them to repay their money if your business fails and you are unable to repay the loan.
You can find a co-signer who is ready to pledge their assets against your business loan. Nevertheless, the co-signer has to be of sound mind. Unfortunately, if you have neither of the above things, you have low chances of getting a business loan.
5. When Do You Need A Personal Guarantee?
Starting a small business is risky; a business start-up loan is the riskiest loan a lender can give. Therefore, you may be required to sign a personal guarantee to obtain a loan for your small business. The lender wants you to understand that you have to play a financial role in the success of your business, and you cannot walk away in case it fails.
6. When Shouldn’t You Sign A Personal Guarantee?
It is essential to ensure that you are more careful when signing a personal guarantee for a business loan. Avoid signing a personal guarantee if you are not part of the business executives, and you do not have access to the company's finances records or plans. In case you are not sure, ask a lawyer to review the document.
Signing a personal guarantee can help you acquire a business loan on good terms. However, before you get a business loan and commit yourself, ensure that you do some research.
