The short answer is \u201cyes.\u201d \u00a0Seems unfair, doesn\u2019t it?<\/p>\n
To most lenders, the guarantee is still a requirement, putting the entrepreneur in a ![\"\"](\"https:\/\/berkonomics.com\/wp-content\/uploads\/2019\/02\/Personal-guarantee.jpg\")
position of additional risk that is not spread among the shareholders.<\/p>\n
Recently, one of my companies offered the founder with a 20% remaining interest after several rounds a reward for signing two large personal guarantees necessary to grow the business \u2013 in the form of a warrant to purchase common shares at today\u2019s common share price. \u00a0A win-win for the investor and entrepreneur assuming the company does grow and have a liquidity event someday.<\/p>\n
The eye-opening process of borrowing for a small business<\/strong><\/p>\n Starting and running a small or growing business can be a challenge to the most confident and optimistic entrepreneur.\u00a0 And the process of borrowing money or financing asset purchases can be an eye-opener for those who are not used to today\u2019s lender and seller aversion to grant easy credit.<\/p>\n The easy solution when entrepreneurs have controlling interest<\/strong><\/p>\n [Email readers continue here…]<\/em><\/span>\u00a0 Most any entrepreneur with a clean credit record can obtain a bank card with a $50,000 limit, if s\/he is willing to give a personal guarantee and has enough assets to back the Some thoughts on elimination of personal guarantees<\/strong><\/p>\n All entrepreneurs assume risk when starting and growing a business.\u00a0 It is only smart to consider ways to mitigate risks when opportunities to do so arise. \u00a0Approach your banker when times are good and discuss whether the increased collateral from growth is enough to eliminate the guarantee. \u00a0Approach your co-investors to negotiate some mitigation of personal risk, such as a backup guarantee in return for warrants. \u00a0Consider approaching another bank or lender with your increased strength and negotiate a \u201ctake-out\u201d loan that eliminates the original lender without requiring a personal guarantee.<\/p>\n Most of all, keep your line of credit clean. \u00a0Communicate with your lender if a payment is going to be late. \u00a0And of course, here\u2019s that old adage: \u201cNever run out of cash.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":" It\u2019s a fact of life that a banker, lender or lessor will ask for a personal guarantee from the founder or entrepreneur most every time. But what if you\u2019ve diluted your interest from 100% to something less than 50%? Should … Continue reading ![\"\"](\"https:\/\/berkonomics.com\/wp-content\/uploads\/2019\/02\/Borrowing-money.jpg\")
promise it contains.\u00a0 As the amounts get higher or as banks get into the picture, the negotiation around a personal guarantee becomes more of an issue with the lender and the entrepreneur.\u00a0 As a rule of thumb, a company with a majority owner in control will be required to provide such a guarantee for most any borrowing of significant size in relation to assets.<\/p>\n