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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 New Hampshire, 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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New Hampshire Requirements for Personal Guarantee

  • Statute of Frauds (NH RSA 506:2)

    Personal guarantees must be in writing and signed by the guarantor to be enforceable, as required by the Statute of Frauds for promises to answer for the debt of another.

  • Consideration Disclosure (NH Common Law of Contracts)

    The personal guarantee must clearly state the consideration being provided in exchange for the guarantee, establishing the contract's validity under New Hampshire contract law.

  • Clear Identification of Parties (NH Common Law of Contracts)

    The guarantee must clearly identify all parties involved, including the guarantor, creditor, and primary debtor (business entity).

  • Scope of Guarantee (NH Common Law of Guaranty)

    The document must clearly define whether the guarantee is unlimited (covering all obligations) or limited (covering specific obligations or amounts).

  • Joint and Several Liability (NH RSA 507:7-e)

    If multiple guarantors exist, the guarantee should specify whether liability is joint and several, meaning each guarantor could be responsible for the entire debt.

  • Homestead Exemption Waiver (NH RSA 480:1)

    New Hampshire allows a homestead exemption of $120,000. The guarantee should address whether the guarantor waives this protection, which requires specific language.

  • Spousal Consent (NH RSA 460:2-a)

    If the guarantor is married and jointly owned assets may be affected, spousal consent should be included to ensure enforceability against jointly held property.

  • Default Provisions (NH Common Law of Guaranty)

    The guarantee must clearly define what constitutes a default by the primary debtor that would trigger the guarantor's obligations.

  • Notice Requirements (NH Common Law of Guaranty)

    The document should specify any notice requirements to the guarantor in the event of the primary debtor's default.

  • Waiver of Defenses (NH Common Law of Guaranty)

    The guarantee should address whether the guarantor waives certain defenses that might otherwise be available, such as requiring the creditor to pursue the primary debtor first.

  • Truth in Lending Compliance (15 U.S.C. § 1601 et seq.)

    If the guarantee relates to consumer credit, it must comply with federal Truth in Lending Act disclosure requirements.

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

    The guarantee must comply with ECOA, which prohibits discrimination in credit transactions, including requiring spousal guarantees in certain circumstances.

  • Governing Law (NH Common Law of Contracts)

    The guarantee should specify that New Hampshire law governs the agreement, ensuring state-specific protections apply.

  • Venue and Jurisdiction (NH RSA 491:7)

    The document should specify the courts that have jurisdiction over disputes arising from the guarantee, typically New Hampshire state courts.

  • Assignment Rights (NH Common Law of Contracts)

    The guarantee should address whether the creditor has the right to assign the guarantee to another party without the guarantor's consent.

  • Termination Provisions (NH Common Law of Guaranty)

    The document should specify how and when the guarantor's obligations may terminate, if at all, prior to full repayment of the underlying debt.

  • Bankruptcy Implications (11 U.S.C. § 101 et seq.)

    The guarantee should address the effect of bankruptcy of either the primary debtor or the guarantor on the guarantee obligations.

  • Attorney's Fees and Costs (NH Common Law of Contracts)

    The document should specify whether the guarantor will be responsible for the creditor's attorney's fees and costs in the event of enforcement.

  • Usury Compliance (NH RSA 336:1)

    The guarantee must comply with New Hampshire's usury laws regarding maximum interest rates that may be charged.

  • Fraudulent Transfer Considerations (NH RSA 545-A)

    The guarantee should be structured to avoid potential challenges under fraudulent transfer laws if the guarantor becomes insolvent.

Frequently Asked Questions