Another Limitation of “Limited Liability”: Personal Guarantees

If your LLC or corporation is getting any kind of loan financing, it is very likely that the lenders will ask you and your fellow business owners for personal guarantees.   Even if your business offers decent collateral, lenders like to see that you put some of your own skin in the game.

Thus, even though you, as a busines owner, are not liable for the debt obligations of the LLC or corporation under the law (limited liability shield), you will become liable under the personal guaranty if the business defaults under the loan.   If the business goes under and can’t repay the loan, your assets are on the line.  What is even worse, if the other business owners can’t pay under their personal guarantees, you may be on the line for the entire amount of the loan, despite the fact that you may only own part of the business.

CCH offers this really good summary of personal guarantees in the loan context, including possible avenues of negotiation in order to minimize or avoid personal guarantees when executing loan documents.  Remember:  Everything is negotiable!


Related Post:  Limited Liability Protection of LLC not absolute

About Imke Ratschko

Imke Ratschko is a New York Attorney helping small businesses, business owners and entrepreneurs with all things "Small Business Law," such as litigation, contracts, business owner disputes, shareholder and operating agreements, sale or purchase of a business, investors, and starting a business. You can reach her at 212.253.1027 or by email.