Before You Guarantee That Loan, Consider The Risk

Online, May 5, 2011 (Newswire.com) - If you are looking for business funding and you need to personally guarantee a business loan or your credit cards, you should definitely start by checking your own credit score. Your score will have a great impact on whether you will be approved and how much you can borrow, as well as the interest rate and repayment terms.

There are some steps you should take before you obtain a business loan that you will be responsible for repaying.

First, know what you're signing. Read the fine print carefully, and ask the lender if business debt will be reported on your personal credit report. Be sure you shop around. Look for the best rates and terms, but don't forget that the higher rates can be a better deal if it means you don't have to personally guarantee your business' debts, or that your business debts won't be reported on your personal credit report.

Check out financing through the Small Business Administration. The SBA may be able to point you toward partnerships with public and private organizations that can provide financing to small business owners.

If you do decide to personally guarantee your business debts, be sure to always pay your bills on time. Most lenders are now reporting business credit on personal credit reports, so not paying on time will have a negative affect on your personal credit as well.
Sometimes a personal guarantee business loan is the only type of loan available. If this looks like your best option, evaluate the risks first. The main risk is that lenders can go after your assets if you fail to repay the loan, up to and including foreclosing on your home or selling your investments.

Your personally guaranteeing the loan may affect your family. Losing your home is an obvious problem where your family is concerned, but some loans also require your spouse's guarantee.

It's clear that personally guaranteeing your business loan is extremely risky, so once you've built credit for your business and gathered assets for collateral, stop guaranteeing loans.