For small business owners, separating personal and business financing can be a challenge especially when your lender wants you to sign a personal guarantee.
Richard Reinis, a Los Angeles-based attorney and Krispy Kreme franchisee, offered advice on how to best navigate this requirement in a recent Bloomberg BusinessWeek article.
“Signing a personal guarantee gives your creditors the right to pursue personal assets if your company defaults-even before the business assets are liquidated,” he wrote. “As this was not news to me, why did I sign, knowing the pitfalls? Because I wanted the business deal and thought I couldn’t get it without signing. I thought the risks were not that great.”
Reinis listed the many risks he faced when he signed a personal guarantee for his franchise.
Based on his experience, he suggested small business owners tell their family about the personal guarantee straight away, not guarantee an obligation for a business you don’t own outright, ask the lender if you can limit the personal guarantee to your share of the business, try to make the agreement better for you and get insurance for your personal guarantee.
To read the complete Bloomberg BusinessWeek article, click here.