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Personal Guarantees for Small Business Loans: What Every Business Owner Should Know

Learn what a personal guarantee means for your small business loan, how it affects your personal assets, and what options you have as a minority, women, or first-time business owner.

Introduction

A personal guarantee is a legally binding promise that makes you personally responsible for repaying a business loan if your business cannot. When you sign a personal guarantee, you're essentially putting your personal assets—such as your home, car, or savings—on the line to secure financing for your business. This is particularly common for small business owners, startups, and businesses without substantial assets or credit history. Understanding the implications of a personal guarantee is crucial before signing any business loan agreement, as it removes the liability protection that business structures like LLCs or corporations typically provide.

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Key Things to Know

  1. 1

    Personal guarantees effectively pierce the corporate veil, meaning your personal assets are at risk despite having a formal business structure like an LLC or corporation.

  2. 2

    Most small business loans, including SBA loans, require personal guarantees from all owners with 20% or greater ownership in the business.

  3. 3

    Your spouse's assets may also be at risk in community property states unless they sign a spousal consent waiver (where available).

  4. 4

    Consider forming a separate property agreement or trust to protect certain assets before signing a personal guarantee.

  5. 5

    Having business insurance, particularly business interruption insurance, can help mitigate risks that might lead to loan default.

  6. 6

    Keep business and personal finances strictly separate to strengthen your position if you ever need to negotiate with lenders.

  7. 7

    Work with a business attorney to review any personal guarantee before signing, as terms can vary significantly between lenders.

  8. 8

    Building strong business credit can eventually help you qualify for financing with less stringent personal guarantee requirements.

Key decisions before you file

Before you file a Personal Guarantee in Nevada, a few decisions shape the document: which option to choose and what each one means. The Personal Guarantee guide walks through them.

Open the Personal Guarantee guide

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Nevada Requirements for Personal Guarantee

  • Statute of Frauds (NRS 111.220)

    Personal guarantees must be in writing to be enforceable under Nevada's Statute of Frauds, especially when the guarantee is for the debt of another person or entity.

  • Clear and Conspicuous Terms (NRS 104.1201)

    The guarantee must clearly state the obligations being guaranteed and the terms must be conspicuously presented to the guarantor.

  • Consideration Requirement (NRS 104.1103)

    The personal guarantee must be supported by adequate consideration to be legally binding under Nevada contract law.

  • Capacity to Contract (NRS 104.1202)

    The guarantor must have legal capacity to enter into the guarantee agreement under Nevada law.

  • Equal Credit Opportunity Act Compliance (15 U.S.C. § 1691)

    Lenders cannot automatically require spouses to guarantee loans unless the spouse is a business partner or the applicant is relying on the spouse's income.

  • Truth in Lending Act Disclosures (15 U.S.C. § 1601)

    For consumer guarantees, proper disclosures regarding interest rates, fees, and terms must be provided to the guarantor.

  • Fraudulent Transfer Limitations (NRS Chapter 112)

    Transfers of assets to avoid personal guarantee obligations may be voided under Nevada's Uniform Fraudulent Transfer Act.

  • Waiver of Defenses (NRS 104.3605)

    Nevada law permits guarantors to waive certain defenses, but such waivers must be clear, unambiguous, and conspicuous.

  • Spousal Consent Requirements (NRS 123.230)

    In Nevada, a community property state, a spouse's written consent may be required when community property could be affected by the guarantee.

  • Bankruptcy Implications (11 U.S.C. § 524)

    Personal guarantees remain enforceable despite business bankruptcy, though the guarantor's personal bankruptcy may discharge the obligation.

  • Limitation of Actions (NRS 11.190)

    Claims on written guarantees in Nevada must be brought within six years of default.

  • Usury Laws (NRS 99.050)

    Nevada's usury laws limit interest rates that can be charged on guaranteed obligations, with exceptions for certain business loans.

  • Unconscionability Doctrine (NRS 104.2302)

    Nevada courts may refuse to enforce guarantee terms that are unconscionable at the time the contract was made.

  • Uniform Commercial Code Provisions (NRS Chapter 104)

    Nevada's adoption of the UCC governs many aspects of guarantees related to commercial transactions.

  • Fair Debt Collection Practices Act (15 U.S.C. § 1692)

    Debt collectors pursuing personal guarantees must comply with federal restrictions on collection practices.

  • Notarization Requirements (NRS Chapter 240)

    While not always legally required, notarization of personal guarantees in Nevada provides additional evidence of authenticity and may be required by lenders.

  • Continuing Guaranty Provisions (NRS 104.3605)

    Nevada law recognizes continuing guarantees that cover multiple transactions, but requires clear language establishing the continuing nature.

  • Revocation Procedures (NRS 104.3605(f))

    Nevada law permits guarantors to revoke continuing guarantees for future transactions, provided proper notice is given to the creditor.

  • Enforcement of Foreign Judgments (NRS Chapter 17)

    Nevada's Uniform Enforcement of Foreign Judgments Act governs enforcement of out-of-state judgments on personal guarantees.

  • Consumer Protection Laws (NRS Chapter 598)

    Nevada's Deceptive Trade Practices Act may apply to the solicitation and enforcement of personal guarantees in consumer contexts.

Frequently Asked Questions