If you are an owner of a print and graphics communications company, I challenge you to negotiate personal guarantees when you can. Check out this dialogue:
Q: what personal guarantees?
A: bank term loans and finance company equipment leases
Q: why didn't you mention lines of credit?
A: because it is extremelly rare for a privately owned company to have a bank line of credit with personal guarantees and I wouldn't disqualify my company from having line of credit financing just because of this requirement because there are other ways to moderate the risk of the guarantee ever being called.
Q: aren't personal guarantees just a formality, who cares?
A: Ask the owners who come through NAPL's offices if they care, especially where owners struggle with "getting out of business" or restructuring debt to survive
Q: won't negotiating against a personal guarantee send a mixed signal to my lender?
A: A strong leader of a creditworthy company always looks to gain an edge in managing outside supplier relationships. To this owner, the lender is a supplier of money. Ask my NAPL colleague, Bill Woods, about his experience when negotating as an owner for many years.
Q: will the lender still want to do business?
A: It is a given that there will be negotiations. If the lender wants to play in the sandbox with strong companies, he/she ought to be used to this kind of request.
Q: but what if my company is not so strong financially?
A: then you have little chance to "just say no" to personal guarantee, you missed your opportunity
Q: so is your advice to negotiate personal guarantees only directed to owners of "healthy companies"?
A: It's directed to all owners, but I realize the phrase "when you can" does not apply across the board. The point is to negotiate IF AND WHEN the opportunity arises.
Q: what if the lender offers "no collateral" as a concession to having the owners personal guarantee?
A: RUN FOR THE HILLS!
Q: Huh?
A: I can explain this more fully with actual clients, but would not go further on a blog.
Q: what else should an owner know about when dealing with personal guarantee?
A: get professional help from an advisor that knows where the line is drawn; this is way more "art" than "science", so experience in these kind of matters goes a long way
It's not just banks but also real estate and equipment leases. Real estate is especially open to allowing no p.g.s.
Other options are limited pg's in amount or only to bring payment current and not to accelerate balance. Personal guaranty can be negotiated to be limited in amount and to be released in portion as certain conditions are met. NEVER sign a pg without trying all options to avoid, limit or negotiate condition for release over time.
Posted by: Kevin Cushing | November 06, 2010 at 10:05 AM