Loan Guarantees are very common on commercial loans that are provided by banks or financial institutions. A Guarantee is a pledge by a borrower to pay the loan of another entity, (company, Corporation, LLC, Individual), when that entity is delinquent (does not pay payments), on the loan payments. Guarantees are a necessary evil in the application of a business loan in a name other than your own name.
The bank or financial institution will ask (insist) on your Personal Guarantee if you are not on the Loan Note. The bank will also insist on your spouse signing a personal guarantee also. They will say she has a marital interest in your assets. Federal Regulation B states that Marital Status cannot be used as a reason to sign a personal guarantee. This is true if your personal financial includes only your assets. Meaning that any assets or liabilities that are jointly owned have to be divided out on the personal financial statement. I have seen several instances where the individual stated, only their assets and liabilities, on their personal financial statement and the bank could not make to spouse sign a personal guarantee. Sometime stating Regulation B is needed to enforce the issue. You may also have the spouse sign a Marital Waiver which states that the spouse has no interest in the Assets. This sometimes if fine for Rental Real Estate but usually the bank or financial institution wants the spouse to make payments if the entity on the note does not make those payments and the bank or financial institution does not care if they have a financial interest or not.
The Small Business Administration – SBA will not only insist on the spousal guarantee but they will also secure that guarantee with the Borrowers home. The bank will also ask for the lien on the home but separate from the guarantee.
The Guarantee is very common and the only business that are not asked for a personal guarantee, or get it waived, are larger companies that have a very large net worth. Debt to Worth of at least one to one or lower than one to one. It is rare for a small business to get the guarantee waived but it would be a very noble and worthwhile goal of any business when pursuing a business loan.
Please Email me if you have any questions or need any help with a loan application or loan renewal at roger@schlueterfinancial.com or my website at www.schlueterfinancial.com .