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What Is a Personal Guarantee and Do You Need One for a Stock Loan?

January 03, 20243 min read

Let's face it, sometimes taking out a loan to keep your small business running smoothly is necessary. And, the good news is that you may even be able to get more out of your loan with a personal loan guarantee.

But what is a personal guarantee and how does it work?

In this article, we're discussing how you can use your own personal assets as collateral to take out a small business loan. And, if you own stocks, we'll define how they fit into the scenario.

Keep reading to learn more.

What Is a Personal Guarantee?

Many small businesses don't have the credit to qualify for small business loans in the early stages. That's when a personal guarantee comes in handy. Business owners and executives with a vested interest in the company can provide a legal promise to pay and guarantee the loan using collateral of their own personal interest.

It's important to understand that a personal guarantee holds you, the individual, responsible in the event that a business loan defaults. Credit issuers consider this an extra layer of protection.

How Much Should You Guarantee?

You can choose the amount that you guarantee. If there are multiple partners, each should pledge an equal amount. 40% for sole business owners is considered a fair number.

Make sure the loan is worth your risk before you pledge your assets in a personal guarantee. You should be thinking about whether you can comfortably guarantee these assets prior to underwriting.

Funding Process

Your business will be required to submit an employer identification number and the details of the financial status of the company. The person or people supplying a personal guarantee will be required to submit their social security number and personal income information.

How a Personal Guarantee Works For a Stock Loan

If you want to use a stock loan, whether business or personal, a personal guarantee works a little differently.

With stock loans, you are entitled to take out a loan for a percentage of the stocks you own. In this scenario, however, your stocks are the only collateral. This means that you will not lose any of your personal possessions or other assets unless otherwise noted in the personal guarantee.

Final Thoughts

Using a personal guarantee for a stock loan is not impossible. It is a good idea to talk to your financial advisor or trusted banker before you sign a contract. If you're married, your spouse may also be required to sign the personal guarantee and your financial advisor can help you understand these and other terms.

Personal guarantees on business loans should outline exactly which assets the lender has access to if the loan defaults. The lender will perform a hard inquiry on your credit report and use that information to determine the loan underwriting terms as well.

If you have more questions about using a personal guarantee for a stock loan, feel free to contact us. We have over 58 years of combined experience in the securities lending arena and the stock market.


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