Skip to content

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.

0/5000

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 South Carolina, 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

Customize your Personal Guarantee Template with DocDraft

South Carolina Requirements for Personal Guarantee

  • Statute of Frauds (S.C. Code Ann. § 32-3-10)

    Personal guarantees must be in writing and signed by the guarantor to be enforceable under South Carolina's Statute of Frauds, as they constitute a promise to answer for the debt of another.

  • Consideration Requirement (South Carolina Common Law)

    The personal guarantee must be supported by adequate consideration to be legally binding under South Carolina contract 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 borrower is relying on the spouse's income to qualify for the loan.

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

    For consumer guarantees, clear disclosure of terms, interest rates, and repayment obligations must be provided to the guarantor.

  • Uniform Commercial Code - Guaranty Provisions (S.C. Code Ann. § 36-1-101 et seq.)

    South Carolina's adoption of the UCC governs commercial guarantees, including requirements for notices of default and collection procedures.

  • Fraudulent Transfer Limitations (S.C. Code Ann. § 27-23-10 et seq.)

    Transfers of assets to avoid personal guarantee obligations may be voided under South Carolina's Uniform Voidable Transactions Act.

  • Homestead Exemption Awareness (S.C. Code Ann. § 15-41-30(A)(1))

    Personal guarantees in South Carolina must acknowledge the state's homestead exemption, which protects up to $60,975 of equity in a primary residence from creditors.

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

    Personal guarantees should address the implications of bankruptcy filing by either the primary debtor or guarantor, noting that certain guarantee obligations may survive bankruptcy.

  • Confession of Judgment Prohibition (S.C. Code Ann. § 37-10-107)

    Personal guarantees in South Carolina cannot include confession of judgment clauses for consumer transactions, which would allow creditors to obtain judgments without normal court proceedings.

  • Statute of Limitations (S.C. Code Ann. § 15-3-530)

    The personal guarantee must acknowledge South Carolina's statute of limitations for written contracts, which is three years from the date of breach.

  • Consumer Protection Code Compliance (S.C. Code Ann. § 37-1-101 et seq.)

    For consumer guarantees, compliance with South Carolina's Consumer Protection Code is required, including restrictions on unfair or deceptive practices.

  • Joint and Several Liability (South Carolina Common Law)

    The guarantee should clearly state whether multiple guarantors are jointly and severally liable under South Carolina law, which affects how creditors can pursue collection.

  • Waiver of Defenses (S.C. Code Ann. § 36-3-605)

    South Carolina law permits guarantors to waive certain defenses, but such waivers must be explicit, conspicuous, and not violate public policy.

  • Attorney's Fees Provisions (S.C. Code Ann. § 37-10-102)

    Provisions for attorney's fees in personal guarantees are enforceable in South Carolina if they are reasonable and explicitly stated.

  • Choice of Law and Venue (South Carolina Common Law)

    The personal guarantee should specify South Carolina law as governing and designate venue for any disputes, which South Carolina courts generally enforce if reasonably related to the transaction.

  • Continuing Guarantee Provisions (South Carolina Common Law)

    If the guarantee is intended to be continuing (covering future advances), this must be explicitly stated to be enforceable under South Carolina law.

  • Modification and Termination Rights (South Carolina Common Law)

    The guarantee should specify conditions under which it can be modified or terminated, as South Carolina law generally requires mutual consent for contract modifications.

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

    Collection efforts on personal guarantees must comply with federal debt collection laws, including prohibitions on harassment and false statements.

  • Usury Law Compliance (S.C. Code Ann. § 37-10-101 et seq.)

    Personal guarantees supporting loans must comply with South Carolina's usury laws, which limit interest rates for certain types of transactions.

  • Electronic Signatures Validity (S.C. Uniform Electronic Transactions Act, S.C. Code Ann. § 26-6-10 et seq.; 15 U.S.C. § 7001 et seq. (E-SIGN Act))

    Personal guarantees may be executed with electronic signatures under both federal and South Carolina law, provided proper authentication procedures are followed.

Frequently Asked Questions