Do you want to supply a personal guarantee when you get credit financing, well if you
don't well then you're in the right place because during this training we're going
to talk about everything, you need to know about personal guarantees. What they are
how to avoid them when you need to supply a personal guarantee and how to build your
business to a point where you don't need personal guarantees, where you can credit financing without
signing as a guarantor. We've got a lot to cover during this training, so let's dive in.
So let's get started with what is a personal guarantee? Well look personal guarantees are
required because your business can't stand on its own, so especially in the beginning
stages of your business or before you build a credit profile for your business showing a
feasible credit and financing history where lenders and credit issuers want to give you money,
well then they're going to want you to sign as a guarantor they're going to want you to take some
of the risk since your business isn't strong enough to take the risk on its own. So let's
just look at a simple example here, Michael Dell. Michael Dell doesn't sign as a guarantor for DELL
no it's not because DELL is DELL, it's because if you look at DELL's credit report, they have
enough credit where they've proven that they can actually pay back their debts. They can pay back
tens and hundreds of thousands of dollars of credit lines and loans.
So as such and because they've accumulated so much assets and the value of the company has
increased all these things get away where the owner guarantee isn't needed. Look the bottom line
is his personal guarantees are needed and required because your business can't stand on its own so
if you want to get away from them then what you've got to do is build a strong credit
profile for your business where lenders and credit issuers know that the business
has more to lose by defaulting than you do and they don't require you to sign as a guarantor.
So now a lot of business owners want to know why is a personal guarantee even required
why do you have to get it for business financing well let's take a simple example
let's say a lender wants to actually give you a loan for $50,000 well if there's
no guarantor and you default on that loan well then they can only come after the business and
the assets of the business, well if the business is a newer business it has no credit profile no score
showing a history of it repaying its debts, so no history to really lend off of and the business
has no real assets to take in case of default. Well then you as an entrepreneur you as the
business owner have nothing to lose by defaulting on that debt that's exactly what lenders want to
avoid. Now this is why secured financing exists to begin with because when you secure the financing
with things like collateral of some sort some asset that can be taken if you default well then
the risk to lenders is significantly less, and this is why if you have 401K,
stocks, bonds, IRAs all these types of assets then you can get financing without personal guarantees,
but here's the problem when you get financing based on your cash flow or based on your revenue
or based on credit, well that's when they really want you to have guarantees because in that case
if you default, there is no asset to take back. So an important lesson there if you're
pledging some kind of asset as collateral it's easier to get around personal guarantees when
you're going to apply for financing, but if you're getting the most popular types
of financing today such as term loans, cash flow financing, merchant cash advances, even SBA loans
this is when they're going to want guarantees because they're going to want you to offset
the risk they have by not having collateral that they could take back in case of business default.
So when should you use a personal guarantee? Well first of all you're probably going to be required
to have a personal guarantee when two things exist. First of all when you're getting unsecured
financing, financing it's not secured by some kind of asset that's serving as collateral
as we just discussed. Now the second time you're going to see that lenders and credit issuers want
to have personal guarantees is when you have no business credit established. So think of it like
this if you want your business to stand on its own then your business has to have a credit profile
that makes it lendable that makes it fundable that makes lenders and credit issuers want to
give you money. So if you are a business that's been around for a year and you have no credit
profile and score well lender really isn't going to want to lend you money when there's
no credit history to be able to look at of how the business has paid its bills, but if
you've been in business for a year and you've got 25 accounts on your business credit reports
loans, credit lines, credit cards, all show perfect payment history good business credit scores and
the credit bureaus themselves are recommending that you be lend 10 20 50 hundreds of thousands
of dollars that's when lenders and credit issuers want to give you money and it's exactly what they
want to see to get you out of personal guarantees. So if you want to not provide a personal guarantee
well then there's two things you could do first you can actually come in and provide some kind
of asset that can serve as collateral. Like I mentioned stocks, bonds, 401Ks, IRAs, equipment,
inventory these kind of assets can be pledged as collateral and in a lot of cases these
lenders and these loan programs don't require guarantees. Second option, build your business
credit, the deeper your business credit profile gets the more accounts appear on that business
credit report the more types of credit financing become available without the personal guarantee.
So if you want to get wrappers guarantees what action should you take right now? Well the key
is to actually do two things, first of all start building your business credit
when you build a business credit profile and score then you give your business a credit
profile that makes it lendable, and this is the key to lenders and credit issuers
wanting to give you money and to avoid personal guarantees. The second thing is as you grow the
business start accumulating assets, one of the most common types of collateral that you can
use is called account receivables. Just letting your customers pay you on terms actually helps
you obtain an asset that makes you lendable and that asset itself can help you in a lot
of cases get around a personal guarantee.So start accumulating assets for the business
start building your business credit and that's the key to getting around personal guarantees.
So what you want to do right now is go to the link in our bio if you check out that link you're going
to find the resources you need to be able to successfully navigate this difficult minefield
of building business credit and build a credit profile and score that makes you lendable that
makes you want to be lent money by lenders and credit issuers. and to get you away from personal
guarantees. So make sure you check out the link in our bio right now and by the way, if you've
got value from this training make sure you like and subscribe and keep your eye out for our next
training where we talk about more cool ways to get the money you need to start grow your business.