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Why Does a Business Need to Give a Personal Guaranty?

Why Does a Business Need to Give a Personal Guaranty?
Brutus - Thu Nov 08, 2012 @ 10:59AM
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Time and time again, vendors, suppliers, and service providers refuse to extend any credit to companies unless a person gives them a personal guarantee of the indebtedness anticipated to be paid on terms. Especially if you are a business owner and your company is either an LLC or a corporation, which means you are likely a shareholder or member, this doesn't make sense to you. After all, you formed your corporation or LLC with the express wish to not be liable for your company's debts. You intentionally limited your liability. If you personally sign a personal guaranty, then you know that if your company runs out of money or is on hard times and has to slow pay, the debt collectors will come after you, you can be sued, and the obligation will come out of your pocket.

You already answered your own question. A lot of times vendors, suppliers and service providers have likely performed a Dun & Bradstreet check on your business, and have decided that you either have to pay up front or pay COD. No terms for you because you are a credit risk, unless of course, you sign a personal guaranty. With all this said, always try and not sign the personal guarantee section of any Credit Application you are filling out and signing, sending in to a vendor or supplier in hopes of getting terms. A lot of them just routinely include a personal guaranty with the application and really only want a company manager or officer signing for the company, but not personally.

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