Simon Madziar
Simon Madziar
A personal guarantee is a pledge from an individual guaranteeing that they will repay a loan if the borrower cannot. Lenders typically require personal guarantees when dealing with new or small businesses without established credit histories to reduce their risk. Whatever point you’re at in the business journey, there’s real value in having a clear funding strategy set up and agreed for your business. The right routes to funding will depend on your business goals, your ability to make repayments and whether your sector is classed as high or low risk. But having a funding strategy in place really is an essential element of your planning. To fund the growth of your business, you’ll almost certainly need to take out a business loan at some point. But many lenders will ask you to provide a personal guarantee against this business loan – and there’s a risk element to consider when taking out finance. So, what does offering a personal guarantee on a secured loan actually entail? And what are the principal risks of becoming a guarantor? When you agree to offer a personal guarantee, you’re essentially promising to repay the loan if the business can't make the payments – and to do this out of your own money or assets. This might seem like a small step to take, but giving a personal guarantee can have serious consequences if your business is unable to repay the loan. Understanding the key risks of taking on this personal responsibility, especially for a small business, is crucial as it provides an avenue to access funding that otherwise would not be available. When considering applying for a business loan, it is crucial to evaluate the potential risks. Ensure that you comprehend the associated risks and have a repayment strategy in case the business struggles to meet the loan repayments. Looking for help with your accounting, bookkeeping or taxes? We can help! Click below to call or schedule a online appointment with us. *Please note that the above information is general advice only. We recommend you seek advice from a specialist relevant to your personal situation. This information is correct at the time of publishing and is subject to change* Tax laws and regulations can change over time, so it is important to stay informed about any updates or amendments that may affect your tax obligations. The Australian Taxation Office (ATO) is the authoritative source for the most up-to-date information regarding tax requirements and regulations in Australia.Minimising Personal Guarantee Risks: Key Considerations
What is a personal guarantee and when is it required?
Understanding the key risks of a personal guarantee
Here are some of the risks of giving a personal guarantee: