No capital equals no business growth. That is the usual harsh reality that each entrepreneur needs to face. Although securing a business loan from traditional finance providers may seem to solve all of your problems, it merely just replaces one source of stress over the other – and that is the stress of not being able to repay the debt, which means risking losing your personal assets (often including the roof above your head). That is what comes along with personal guarantees on business loans.
Now comes the question – can you do it differently? Let's find the answer in the following paragraphs.
Why are personal guarantees required?
Lending large sums of money to any business is a risky deal, and especially if the company is fairly young with not enough good profit history. A business like this can fall apart at any time and that is why finance providers want to protect themselves.
To decrease the risks, lenders often ask for a personal guarantee, which is basically a legal promise that in case a business is unable to repay its debt, the owner will take personal responsibility and use his personal assets for the repayment of the balance.
What are the risks of agreeing to personal guarantees?
Taking personal responsibility for repaying your business loans represents a lot of stress for the owner – sometimes unpredictable things happen in the business world and even a slight shift to the negative side can make you lose everything that you have and worked for – savings for your child's university, your car and even the house you are living in.
Although agreeing to personal guarantees is a pretty scary thing, which poses huge risks to business owners, we tend to not question it anymore and sign whatever paper they place in front of us. But why do we do that? Well, that is how things are and have always been, right? Moreover, if you need capital, that seems like the only option for you…
Even though the reason why financial providers ask for personal guarantees seems logical, you can still choose differently – and that is not signing any personal guarantees agreement at all.
What is the way to avoid personal guarantees on business loans?
YES, there really is a way to raise business capital without the fears of losing your personal possessions. And that is – when you choose the right financial provider, which does not require any personal guarantees from you. One that is truly founder-friendly and whose aim is to make your path to success as easy and stress-free as possible, without posing unnecessary threats to you.
Like we in Threshold Capital.
Unlike traditional business capital providers, we put the well-being of your business in the first place and that is why we do things differently. Our secret lies in a very thorough evaluation process, during which we will ask you for a number of documents and financial reports to help us assess if your company is trustworthy enough to eliminate our risks.
Let us be honest with you - we are kind of picky. But once we decide your company is a good fit for us, you can put all your worries aside – because even if something goes wrong, no one will ever touch your personal possessions.
This is how to build a working business relationship based on trust – by fully believing in your partner.
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