Posted by: Dave Simonsen
~10 Leasing Insights ~
Broker tips to better deals
Tip # 5
Personal Guarantees
When you start a small business, it often feels like it owns you. Your financial health and that of your business are initially one and the same. As the years pass and the business grows, it can eventually take on a financial life of its own. From the other perspective, landlords give legal control over an asset (often worth a million dollars or more) in return for a promise from you to pay rent. They want to know they will get paid from the entity or its owner. So when and how can you avoid Personally Guaranteeing your lease?
BROKER INSIGHT: If you’re a startup company, you likely won’t avoid a Personal Guarantee. What you can try to do is structure an out after a period of time to limit your personal exposure. If this is your second lease or you have some operating history, phasing out the personal guarantee over time becomes much more likely. An alternative to a Personal Guarantee, particularly when a new venture is well funded, is to offer a surety bond or a letter of credit guaranteeing the lease. This will tie up some of your operating capital, but is often preferable to a Personal Guarantee. Recognize that as with individuals, businesses build credit worthiness over time. If you have to give a Personal Guarantee on your first deal, work toward building the business credit to the point you won’t have to in the future.
Next Tip.... Option to Purchase
