Posts tagged: Startups

Feb 03 2014

Personal Guarantees

A big mistake that new businesses make is that they sign anything that a vendor or supplier gives them – they don’t look at it, and they don’t take the time to ask for an attorney’s help. They either fear that they cannot delay, or they cannot afford an attorney. However, when that business starts to get in trouble, it’s the business owner who gets sued. That’s when it turns out that one of the papers signed was a personal guarantee.

A lot of vendors and suppliers are reluctant to give a new business any credit without a personal guarantee. That doesn’t mean that you should sign it, or that you shouldn’t try to renegotiate it. If you can afford to make purchases cash-on-delivery in the beginning, then you can build up some credit with the suppliers.

Once you’ve been in business for a while, and have built up a reputation for making payments on time, you can also attempt to renegotiate your vendor agreement. By renegotiating the personal guarantee away, then you can protect yourself in case there is a problem later. You may still find yourself in court – but being able to produce documentation showing that the personal guarantee has been voided will be able to help you.

Contracts are not static documents – they can be modified throughout the life of the agreement. If you have personal guarantees, then it may be time to look into modifying them.

WordPress Themes