Are Personal Guarantees and LLCs Counter-intuitive? What does PG entail?

[Anonymous]

Forgive me if I miss the obvious, but at face value, aren't you undermining the protective value of an LLC by taking out a business loan and personally guaranteeing it? Would somebody mind defining what PG does and doesn't entail?

[SouthJamaica]

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@Anonymous wrote:

Forgive me if I miss the obvious, but at face value, aren't you undermining the protective value of an LLC by taking out a business loan and personally guaranteeing it? Would somebody mind defining what PG does and doesn't entail?

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Try getting a personal loan for your small business without a personal guarantee.

[Anonymous]

I'm aware that without business credit established you have to PG the loan. It's also possible to establish business credit without using PGs. I'm just asking what a PG legally entails you to.

[Anonymous]

It is not credit default I am worried about. Our little biz has so many blind alleys and off spring to protect it from sue happy lawyers it is not even funny.   

[CH-7-Mission-Accomplished]

You are obviousy a bright person so you know that a PG means that the creditor will come after you for the debt if the business defaults.   As Jamaica said, you can't really get a business loan without a PG unless you are a publicly traded company.   But I'm talking about a real loan -- like going to BofA and asking for 100K to do an office remodel or something.

With my small business I have an Amazon revolving account that did not require a PG.   It's only 5K but it is not a 30-day pay in full, it is a true revolver.   I've had some business leases without PGs.

One reason to give PGs is when you are starting to build a credit file on your business.   It shows as a trade line but on your business credit report it doesn't say there is a personal guarantee.   So you PG for a while at the beginning until you have enough trade lines and large enough trade lines that somebody will take a chance on you.   But if your business has no real assets, i.e, you own your office building, etc., it's a tough  thing to get business loans from real banks.

[Anonymous]

One biz we owned sold well over $10 million netted before taxes $1m  had over 10 years in biz and still had to have pg

But then my step father before he passed was CFO for a co that had $1 billion in sales and about 100 share holders.

No PG also about 1/2 of the stock was owned by about 10 or so people. 

[iph38]

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@Anonymous wrote:

Forgive me if I miss the obvious, but at face value, aren't you undermining the protective value of an LLC by taking out a business loan and personally guaranteeing it? Would somebody mind defining what PG does and doesn't entail?

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Yes, forming an LLC and using a PG for business credit is absolutely undermining the reason for incorporating as an LLC.  However all but just handfull of lenders offer business credit products without a PG for obvious reasons.  They simply want someone else to come after if they don't get their money.  This didn't used to be case, but it is now, and I think it sux.

Citi backed gas cards, Sunoco, Exxon, Shell.  Citi backed Office Depot and Staples.  Sync backed Amazon corp revolver and Sams Club store & MC, but Sams is tricky.  Most of the employees will insist you have to provide PG, but if can convince them they are able to uncheck the PG box on their screen, the app can be submitted on Biz credit only.  I see some people have trouble getting the Sams employee to do it.  When I apped last year, I told the woman she could uncheck the box, she was reluctant to try but I got her to do it and she said she learned something new, she didn't know she could uncheck the box.  The app had to be verified by Sync rep, but I was approved for 10k MC without a PG.

I PG'd 2 cards for my LLC when I first formed it, I wished I hadn't, and if I had to do it again, I wouldn't have, but it will take years of Net 30 payments before you're likely to get biz credit without a PG.

[Anonymous]

@iph38 - When you had the rep run your business credit app without a PG, did they still HP your personal credit, or did you have enough business tradelines (EX / TU / Dunn & Bradstreet / Paydex) reporting for the app to go through?

Is it possible, once you've established a solid payment history and financials, to remove the PG? Or are you just looking at establishing new tradelines once you want to non-PG your business loans?

[iph38]

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@Anonymous wrote:

@iph38 - When you had the rep run your business credit app without a PG, did they still HP your personal credit, or did you have enough business tradelines (EX / TU / Dunn & Bradstreet / Paydex) reporting for the app to go through?

Is it possible, once you've established a solid payment history and financials, to remove the PG? Or are you just looking at establishing new tradelines once you want to non-PG your business loans?

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When they ran the application without a PG, it was only on biz credit profile.  Personal SS# not provided, so not personal credit pull, just biz.  I'm not sure if PG can be removed later if initially supplied, but if I was a lender, and I was able to secure a credit line with PG, I would NEVER allow it to be removed.  The whole reason they ask for it, is to have someone else to go after, I can't see them wanting or agreeing to give that up, no matter how good you payment history becomes.