Why I Hate Personal Guaranties…

Personal Guaranties, Suretyships, and Guarantees are dangerous

When we first sign personal guaranties most of us have no clue how dangerous the contracts are. The lender or creditor tells us that everybody signs them. So does our accountant. And our attorney. Or that they are normal. Neither of these is true.

But when the lender says “sign or leave” guess what most of us do?

By the time we find out what a personal guaranty contract is it’s too late for any repair.

To be clear, this personal guaranty contract is a worldwide standard. In some countries it’s called a personal suretyship. In others a commercial guarantee. But they all mean the same thing.

Since 1992 I’ve worked with hundreds of distressed business owners. Losing their homes because they signed a personal guaranty at some point. Most marriages don’t survive the stress.

In my work the personal guaranty it is always a business owner guaranteeing a company debt. Or, much worse, their parents guaranteeing that debt.

Image of Personal Guaranty Contract

Don’t sign personal guaranty contracts,

The contract protects the lender, usually a bank. But in doing so it destroys the business owner.

That same bank often secures the business loan with personal security. In other words, they expect you to deposit cash with them. Or to allow them to take a “charge” or a covering “bond” against your home. As well as the personal guaranty.

I learned the scope of these contracts documents back in 1992. My local economy collapsed and took my firm with. I too had secured the business loan with personal assets. And when the bank needed payment they liquidated the assets for 10% of the true worth.

I could not understand how I could have been so stupid. I began to talk to other business owners, only find that every single one of us had signed these same contracts.

I wondered how banks could get away with holding cash and other securities against a loan. As well as provoke us into signing a personal guarantee to secure them.

I have no problem with them protecting themselves.

  • I have a problem with the unknowing guarantor losing their home and everything else they own.
  • I have a problem with parents signing these personal suretyships without knowing what they are.
  • I have a problem with spouses signing personal guaranties without understanding them.
  • I have a problem with one spouse being able to sign a personal guarantee of these without the consent of the other.

It’s tough enough to close a business. How much tougher when your family point fingers at you because mum and dad are losing their home because they signed that guaranty?

After 25 years of helping people through the fallout I have placed everything I know online in a course I call Business Owner Success Strategies. The course focuses on the challenges of ownership, rather than regular business challenges addressed whenever we talk about entrepreneurial risk.

What’s in It For Me?

Why most small business marketing plans fail

Consulting is fun. You delve into a huge variety of other peoples businesses.

During the past 4 weeks I have been privy to many marketing plans.

Each plan faced a major flaw. Most of us small business owners do not know who we’re selling to. Or who is actually buying. Or why they’re buying. Or even what they’re buying.

For instance, if I am selling an advertising service to a business owner – what is he actually buying?

Is he buying the fact that my system is cheaper than that of everybody else? Is he buying the fact that he can display more information on my system? I don’t think so. Or that he can display en route to the airport where there is a lot of traffic? I don’t think so. These are mere features of my service.

He is buying more clients. And if I don’t sell him on that one issue then I am wasting his time and mine.

Almost all the sales literature that I read focuses on the supplier and his product.

  • This product is state of the art [who cares],
  • or revolutionary [ho hum],
  • or unique [yawn].

But nobody tells me exactly how it will benefit me! Allan Pease talks about WII-FM in his book Write Language.

What’s In It For Me? (WII-FM)

If you want to sell to me then get onto my wavelength and tune out all the other stuff.

And my wavelength is simple: What’s In It For Me?

Dan Kennedy says the same thing in a different way:

“It takes extreme, extraordinary measures to compel people to act in a way that is contrary to the way they normally act (do nothing, decide on nothing, buy nothing).”

If you’re selling to a business keep it simple. Tell your prospect how he will benefit from your product. Tell him what it has done for others like him.

But don’t waste your time telling him how wonderful the product is. (Unless you can translate wonderful into instant money for him. That’s why he is in business.)

When talking to prospects focus on one thing: WHAT CAN YOUR PRODUCT OR SERVICE DO FOR THEM.

  • How much money can it save them?
  • How much time can it save them?
  • How many more clients will it bring them?
  • How many people can they fire by using you instead? How much more mileage will they get?
  • How much admin will it cut?

Good luck in finding questions your clients want to hear.

This article first published in May 2000.