One of the scariest things about being in business for yourself is the risk of losing your home or other personal assets if your business fails. Many creditors insist on personal guarantees, but if you want to avoid this risk and calm those fears, listen in today.
Roland practiced business, tax, and securities law for over 12 years and is now an active investor who drives growth and scale in his portfolio companies. He is co-founder and/or principal of three current Inc. Magazine fastest-growing companies and he has founded, scaled, or sold 24 different 7 to 9 figure businesses ranging from consumer products to industrial machine manufacturing companies with adjusted sales ranging from $3 million to $337 million. Roland currently advises over 150 companies on digitally centric customer acquisition, activation, referral, retention, revenue strategies, and plan implementation.
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So, How do you negotiate your way around giving personal guarantees?
Step 1 is to structure your business as a Limited Liability entity. This is 101. But, beyond that, Roland rolls out his top 17 strategies (in order of preference) as an alternative to offering a personal guarantee.
“First off, just say No. Many times the bank or Lender is asking as a matter of course, it’s just a box they need to check, and they don’t actually care. They will move on. But, when creditors insist, you need some additional tools.” Roland Frasier
Roland’s Top 7 Strategies
Listen for 10 more smart and creative ways to avoid personal risk but move forward with your entrepreneurial ventures. Click to find us on Apple Podcasts and other podcast players. 🎧 It might just save you your home!
- Provide the Lender with weekly financial statements. This will often ease the creditors’ concerns because they can continue to assess the health of your business and ensure that they won’t be blindsided if things take a turn for the worse. This is particularly helpful if it’s a revolving credit line.
- Provide them read-only logins to your financial accounting programs. This is less favorable for you because it puts the creditor more up in your business, but it provides the creditor with all the benefits of #1.
- Make weekly, instead of monthly payments. More frequent payments reveal financial challenges more quickly than monthly and therefore reduce your lenders’ risks.
- Purchase credit insurance on your customers to ensure the quality of critical liquid assets like accounts receivable or purchase orders.
- Provide a Fidelity certificate. This triggers a personal guarantee only if you commit fraud as defined in your purchase or loan agreement. This protects the Lender against fraud risk but not against general business risk. It gives you a kind of hybrid liability, so unless you’re going to lie, cheat, and steal, you’ll be okay with that.
- Use specific asset security pledges. Give the Lender a priority lean on particular assets such as Domain names or Accounts receivables or equipment, etc. That way, they have reduced risk, but they still don’t get your Personal guarantee.
- You can Pledge liability for other assets, such as a domain name that you own, your wine collection, a boat, a watch, or your rental property. This gives them a cross collateral offset that doesn’t touch your home.
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