Get a Business Loan

Take your next step with fast, affordable business financing.

Apply Now
Invest

Learn how you can invest in American small business.

Resources

Get inspired, read advice, and learn how to help your business thrive.

About us

Find out how we’re building a better financial world.

Resources >   Business Finance  >  

What is a Personal Guarantee?

Business Finance

What is a Personal Guarantee?

Updated: Dec 9, 2019

What is a Personal Guarantee?

What is a Personal Guarantee?

When a small business owner applies for a term loan, it is typically to make a one-time investment in a specific growth opportunity. This could be opening a new storefront, expanding or renovating an existing workspace, hiring new employees, or even developing new technology for the business.

For a lender, the primary goal during the underwriting process is to establish two things: whether the business owner has a history of paying back debt, and whether the business will generate enough income throughout the loan term to cover the requisite payments. Approval is an indication of the lender’s confidence in the likelihood of recovering the investment.

Repayment is never a complete certainty. As a result, lenders will typically place a UCC lien on the business’s assets, as recourse in the event of a default. Given that the business’s assets may not cover the full value of outstanding debt, Funding Circle, and many other lenders, also require a personal guarantee from the owners of the business. A personal guarantee is an agreement that gives a lender the right to claim a business owner’s personal assets, to cover outstanding debt obligations in the event of a default.

At Funding Circle, we require a personal guarantee from at least 60% of the ownership of the business. Signing this contract, means that 60% of the ownership agrees to be personally liable for 100% of the outstanding debt. It is important to understand that personal assets are generally not a significant factor in our underwriting process; our risk grades are primarily based on the underlying fundamentals of the business.

Enabling small business growth is our reason for being. Personal guarantees protect our investments, in the event of a worst-case scenario.

Michael Jones

Michael Jones is a Senior Editor for Funding Circle, specializing in small business loans. He holds a degree in International Business and Economics from Boston University's Questrom School of Business. Prior to Funding Circle, Michael was the Head of Content for Bond Street, a venture-backed FinTech company specializing in small business loans. He has written extensively about small business loans, entrepreneurship, and marketing.

COVID-19 Small Business Updates

The latest news about Small Business Relief programs and COVID-19 related resources

By clicking “Sign Up for Updates” you agree with our terms of use and acknowledge the privacy policy

Keep Reading See all articles

Take your business further.

dots image

Sign up for Funding Circle newsletter!

Get our latest news and information on business finance, management and growth.

Great Review:

5779 REVIEWS