Personal Guarantees
Small business owners must read the fine print when it comes to getting money from a bank. This goes for taking out a loan or getting a corporate credit card. Most of these contracts that accompany such forms of credit require that if the business cannot meet the payback obligations that the owners of the business repay the loan. If your business fails and you made a personal guarantee, you – the owner – are on the hook.
The Wall Street Journal wrote a sad story citing examples of personal bankruptcies resulting from failed businesses.
We point this out mainly because there are alternatives to business loans that frequently do not require a personal guarantee to repay in the event a business fails. These are so-called standard business cash advances. There are many providers of such business cash advances, also known as merchant cash advances.
Are there drawbacks to using sources of business capital that do not require personal repayment guarantees? Yes. The first is these frequently require that the business switch its credit card processing to a new provider. The second is that this form of financing usually provides a smaller amount of money than a longer-term loan-like product would provide. This is because the financing company assumes repayment will occur in a year or less, whereas loans repayment terms often assume a longer duration, ranging from one to five years. Third, this form of capital is viewed as expensive by some.
However, when you consider the benefits of a business advance, frequently including no personal repayment guarantee and access to capital in under a week, these more than offset the potential negatives.
