What happens if your company goes belly up and you have given the bank a personal guarantee for the loan? It’s simple. The chances are good the bank will come after your assets in order to mitigate their losses to whatever extent possible. They won’t stop at some point because you’ve been a nice guy; they’ll take every last penny they can get. Obviously, no one signs a loan with a personal guarantee with the belief his business will become insolvent or cash flow poor to the point that it can no longer make the loan payment but, by making this choice offer surety, you violate at least two of God’s teachings.
Today, we’re concerned about the idea of surety (another word for personal guarantee) and God’s admonition to not indulge in the practice. It would be no surprise to us to find that a certain percentage of readers have already made the mistake of signing surety on a business loan, so the present task before us is damage control. Maybe you didn’t disobey God’s word against surety on purpose but you end up the same place, don’t you? Here are the best ideas we can come up for avoiding this unpleasant and financially dangerous state of existence.
1. As time goes by, concentrate on amassing enough earnings that the bank will let you out of the personal guarantee. If you can show them you’ve got enough socked away as a result of your business success, they’ll not only be relieved at the validity of your business idea but liable to think they no longer need a personal guarantee from you on the loan.
2. Reduce your own salary from the company in order to build up the earnings savings faster. Right now, we’re concerned about getting a release from the guarantee as soon as possible. Let’s say that again: As soon as possible! Another of God’s teachings comes to mind here – you never know what tomorrow might bring, so get your neck off the chopping block ASAP.
3. Consider trading ownership for investor equity. In this scenario, you solicit enough investor cash to take the place of an earnings deposit. You will give up a portion of your ownership stake but you’re also developing a pool of business participants with a vested interest in your success.
These are but a few ideas to ponder while seeking to rid yourself of a personal guarantee on a business loan. A good point to remember is that God doesn’t need to work through the auspices of a bank to be successful and, by extension, neither do you.
The Solomon Success Team
Flickr / B rosen