What is a personal warranty?
Personal warranty is an agreement of a member of the company to repay the company's loan or other creditor if the company fails. Occasionally, small businesses may decide to expand or buy equipment or products for their business. If this company does not have the money to buy these items separately, members of business can go to a bank or other creditor for a loan. As a condition of the loan, the lender often requests a member or members for a personal warranty. This warranty requires guarantors to pay off the loan if the company could not. This warranty allows the creditor to monitor the guarantor in person if the company does not pay a loan. Personal guarantees not only show the creditors that one is serious about business, but it can also shock the fact that the individual seriously repays the loan. In addition, it is also a motivation for the guarantor to work hard to succeed to repay the loan. If the company fails for any reason, the creditor can go through the right channels and entertain personal belongings such as houses or cars.
Many people may think that personal guarantee is a reasonable risk because they are sure that their business will be successful. In addition, there may be the only way to get a loan from a particular creditor. With money in hand, the company can buy land to expand its business, equipment so that the company is more efficiently operated or other items necessary for the course of its business matters. The creditor may like such a warranty because it is more likely that the individual will do what is needed to pay off the loan. The creditor can also Feel as if in a better position to get a payment for money because he is legally allowed to perform assets with a high guarantor if the company fails on a loan.
The risk of signing a personal warranty is usually a person signing the warranty. If business failed despite the best guarantor's efforts, could lose his personal assets like homeor savings. To avoid this, some owners looking for a loan will try to negotiate the guarantee. Some creditors are willing to do it, especially for a company that is successful. Others do not have to. In some cases, the person may not be able to avoid the signing of the warranty so that the risk should be taken care of and the advantages and disadvantages of the warranty thoroughly consider.