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What is a personal guarantee on a small business loan?

It’s common practice for lenders to require a personal guarantee from the business owner(s) to protect the lender should the business default on the loan. Lenders do this to mitigate the risk of lending to small businesses, and the guarantee is often a requirement by the lender before offering a loan.

In the event of a default, a personal guarantee gives the lender additional options to collect the debt. This requirement is sometimes waived for businesses that have longer than five years in business and a good business credit rating.

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