Personal Guarantee

January 20, 2025

by a searcher from The University of Chicago - Booth School of Business in New York, NY, USA

Hi Searchfunder community - how did you get over the PG, especially with spouse included in the extreme downside case? I am considering financing a portion of purchase through investor equity. However, the debt is still beyond my means to pay off. The worry of getting wiped out fully is concerning. How have you found a way to limit guarantee or avoid it completely if doing a $3-5m purchase?

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Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

Unfortunately it is almost impossible to avoid a personal guarantee on the size transaction you are talking about if you using any sort of normalized financing.. SBA lenders will require it no matter what. Conventional Banks on transactions of this size are going to require it as well. And most non-bank lenders will even require it if your deal is not too small for them. You are asking a lender to take a significant risk on a business acquisition likely with goodwill exposure. They want you to stand behind that risk and it also protects them from you being a bad actor and draining the cash out of the business. Unless you are going to use all equity or seller debt, expect the guarantee. And even using seller debt, I usually find the seller's attorney is going to require you to sign a personal guarantee.

Moving your assets into a Trust will not protect them. If all of your personal assets are in a trust the lender will likely require the Trust to guarantee as well.

I would be happy to jump on a call to talk about ways you can minimize your exposure and go through how the guarantee works. Also, your wife should not be required to be on the guarantee. So assets she has separate from yours would be protected. You can reach me here or directly at redacted

Reply by a searcher
from INSEAD in San Francisco, CA, USA

Depending on the business, you could go the traditional funding route if the business has assets. In my case, its just means buying smaller, using less leverage, and potentially having a larger seller note.

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