Whose name is on that loan?

Hey there, Ben here. This week is about a piece of paper most owners signed years ago and haven't read since.

Say you set up your company the right way. Separate accounts, clean records, good insurance. Then you go to the bank for a line of credit, the equipment dealer for a loader, and the supply house for a credit account. Each one hands you a stack of papers, and somewhere in there is a personal guarantee. Now if the company can't pay, they can come to you. The wall from Issue 2 has a door in it, and you signed the door. Most owners can't tell me how many guarantees they've signed or how much they add up to.

How much of your company's debt are you personally on the hook for?

Guarantees are often part of getting credit, especially for a growing company. The goal isn't to never sign one. It's to know exactly what you've signed and shrink it over time. Have your own attorney review any guarantee before you sign.

1. Build a guarantee list.
Pull every loan, line, lease, and credit application. For each one, note the lender, the limit, whether you guaranteed it, and whether your spouse signed too. Say you find a $500,000 line, $300,000 in equipment notes, and three supplier accounts at $50,000 each. That's $950,000 with your name on it.

2. Know which guarantees outlive the debt.
Some guarantees cover a single loan. Others are written to cover anything you owe that lender, now or later. Say you paid off a truck note years ago but the guarantee covered "all obligations." It may still be in force. Ask each lender in writing what your guarantee currently covers.

3. Ask for limits when you renew.
As the company gets stronger, you have more leverage. Say your line renews at $750,000. Ask whether the guarantee can be capped at $250,000, or released once the company hits certain financial targets. You may hear no. Ask anyway, every renewal.

4. Clean up supplier accounts.
Supplier credit applications often bury a guarantee in the fine print. Say you have five supplier accounts and only use two. Close the three you don't use, and ask the two you keep whether they'll accept the company's credit history in place of your guarantee.

5. Keep the list current.
Add every new guarantee the day you sign it. Review the total once a quarter in the same meeting where you review your owner pay.

Say you renegotiate just one guarantee down by $250,000 and close two unused supplier accounts. That's a real reduction in what your family is exposed to, and it took a few phone calls. Small moves add up over a few renewal cycles.

Open a blank sheet with four columns: lender, amount, guaranteed (yes or no), and spouse signed (yes or no). Fill in every line you can from memory. The blanks show you what to look up.

Start with the Protect section of the free Contractor Wealth Scorecard. It's a fast way to see whether guarantees are one of your biggest gaps.

Take the free Scorecard →

Hit reply and tell me: when you added it up, was the total more or less than you expected?

Talk soon,
Ben

P.S. Not sure guarantees are your biggest gap? The free Scorecard takes a few minutes and shows you where to look first.

Contractors Digest is for general educational purposes only and is not legal, tax, accounting, or investment advice. Talk with your own qualified advisors before making decisions for your business or family. Dollar examples are illustrative only.