Did the leasing company ask for your personal guarantee?
A Personal Guarantee is a written guarantee given by the business owner guaranteeing payment performance on a lease in the event the company defaults on the lease.
Personal guarantees are applicable in closely held corporations, partnerships and proprietorships. Sometimes the guarantee request will include the owner’s spouse.
TIP: Address the personal guarantee up front and early in the Request for Proposal (RFP) process. It can make negotiations difficult later. If not mentioned as an issue for discussion as negotiations commence, the leasing company assumes the guarantee is available.
TIP: If you are the company owner and have personally guaranteed a lease, it is essential that you get your personal guarantee released when you sell out. If proper release documents are not signed and there is a default by the current business owner, you will be held responsible
REAL LIFE: One of our Maryland printing company clients asked us to review his bank’s four-page Personal Guarantee. Since he recently bought out his partner, his wife was asked to sign the guarantee for the first time.
What did we find that we negotiated? This is part of what we negotiated on for the printer.
- In a default, the bank comes after the owner’s personal assets before resorting to any other remedies or security.
- The bank’s books and records are the only records to be considered in court. Forget about your records!
- The bank has a blanket lien on all assets held by the bank. Does that include your safety deposit box contents? Find out.
- The owners waive their rights to correct a default. No chance to make things right!
- The printer cannot encumber or sell assets without the bank’s permission. How do you feel about calling the bank when you want to sell your car or Jet ski that you own free and clear.
What about you? Do you have a personal guarantee with bigger issues than our Maryland printer does? We’d love to hear from you. Share a problem with us.
When entering into a lease, you must be smart about it. So many things could easily trip you up and cost you extra fees, penalties and headaches.
My white paper “Smart Leasing Strategies: It’s in the Fine Print” contains eight strategies to save time and money. Download “Smart Leasing Strategies” here.