Personal Guarantee Letter for Business Loans

jerryob

I have recently heard that banks are looking for personal guarantee letters as part of the approval process for Business Loans. This practice seems to have crept in over the past few months (maybe longer??), and may be to counter any accumulation of potential bad debts by banks, spurred on by the current credit crisis. I would argue against such personal guarantee letters arguing that banks are rewarded by loan [defaulting] risk in the guise of interest premia.

I would like to hear peoples experience, good and bad, having been faced with such a guarantee letter to secure a business loan. I am about to open a business account and am planning for loan applications in the coming months...

Thanks in advance.

information

jerryob wrote: »

I have recently heard that banks are looking for personal guarantee letters as part of the approval process for Business Loans. This practice seems to have crept in over the past few months (maybe longer??), and may be to counter any accumulation of potential bad debts by banks, spurred on by the current credit crisis. I would argue against such personal guarantee letters arguing that banks are rewarded by loan [defaulting] risk in the guise of interest premia.

I would like to hear peoples experience, good and bad, having been faced with such a guarantee letter to secure a business loan. I am about to open a business account and am planning for loan applications in the coming months...

Thanks in advance.

personal guarantees are the standard and have been for many years

Darragh29

jerryob wrote: »

I have recently heard that banks are looking for personal guarantee letters as part of the approval process for Business Loans. This practice seems to have crept in over the past few months (maybe longer??), and may be to counter any accumulation of potential bad debts by banks, spurred on by the current credit crisis. I would argue against such personal guarantee letters arguing that banks are rewarded by loan [defaulting] risk in the guise of interest premia.

I would like to hear peoples experience, good and bad, having been faced with such a guarantee letter to secure a business loan. I am about to open a business account and am planning for loan applications in the coming months...

Thanks in advance.

Right now banks are closed for business with small business. I don't think you will get a loan based on a letter of guarantee, even securities now are being rejected, unless they are cash securities lodged in a deposit account which the bank will have a lean on. My advice is forget it until the all this nonsense with the credit crunch is over because you will only end up having your head wrecked trying with the banks at the moment...

jerryob

Thanks information and Darragh29.

I recently met with a BoI branch manager re: business banking, who talked me thru the personal guarantee requirement. I was quiet impressed by him, as he presented himself as the entrepreneur's advocate within the bank. Let's see how much fight he has in him, when I start asking for more beyond the standard fare.

I do not need a loan now, but may need one mid-09. I will be going on a private funding round in '09 and may want to bring on ~10-20% debt, as part of that. I'll expect the bank to minimise their exposure, possibly wanting to secure their debt against the equity funding (??).

Darragh29

jerryob wrote: »

Thanks information and Darragh29.

I recently met with a BoI branch manager re: business banking, who talked me thru the personal guarantee requirement. I was quiet impressed by him, as he presented himself as the entrepreneur's advocate within the bank. Let's see how much fight he has in him, when I start asking for more beyond the standard fare.

I do not need a loan now, but may need one mid-09. I will be going on a private funding round in '09 and may want to bring on ~10-20% debt, as part of that. I'll expect the bank to minimise their exposure, possibly wanting to secure their debt against the equity funding (??).

My own experience lately and also that of folks I know in the same position is that unless it is 100% cash guaranteed, you can forget it. A more annoying thing to consider is that the banks don't actually have money to lend at the moment, but rather than just come out and say it, they are playing a cute huer game with potential borrowers. They will make you jump through every hoop they can dream up and at the end, if you can't secure it, you can forget it. My friends who are probably more credit worthy than I am in terms of having traded for longer and likely have more retained profits, are finding the exact same thing. We have concluded that AIB is the worst bank to be dealing with at the moment, they obviously have a lot on their hands with their buddies in the construction industry and are too busy "running with" their building developer buddies in the Construction Industry and their well known problems, to be able to be of any assistance to business start-ups at the moment...

Bandara

jerryob wrote: »

Thanks information and Darragh29.

I recently met with a BoI branch manager re: business banking, who talked me thru the personal guarantee requirement. I was quiet impressed by him, as he presented himself as the entrepreneur's advocate within the bank. Let's see how much fight he has in him, when I start asking for more beyond the standard fare.

I do not need a loan now, but may need one mid-09. I will be going on a private funding round in '09 and may want to bring on ~10-20% debt, as part of that. I'll expect the bank to minimise their exposure, possibly wanting to secure their debt against the equity funding (??).

To be honest I find they are all like that, they tell you what you want to hear to stop you going to any other bank, but in reality they have no real way of getting any application past the underwriters etc unless the application is perfect from the banks point of view, in which case it would be approved regardless of the bank managers interventions.

The "I'm going to push this case very hard for you" etc quotes must be taught to them all in Banking school!

jerryob

Thanks Darragh29 and Hammertime.

They [bank managers] are well trained in tempting you on board, I find. One annoying thing I found re: the BoI "startup package" (and probably other banks) is that their credit card only offer 15days (on average) repayment terms. To me, this is a cash card. Anyhow, I'm planning to go to the BoI scraper-for-the-customer manager before signing up, to see if he can add a month on to the payment terms. I don't expect any results, but will be interesting to see what he says.

On a more general note, it is a frustrating environment to start up a HPSU in. My plan ticks all the right "government boxes" to do with knowledge-based, internationally traded, significant IP, patent portfolio, tangible assets, etc. While there are good supports for indigenous-trading startups, there is a chasm of supports for technology HPSUs that need significant phased funding before breakeven. We should take a leaf from the Israeli book - they've trackled the early funding issue, and look at the amount of IPO's coming out of there now.

Anyway, this is drifting off the original scope, but is a topic that needs further debate in the appropriate forum.

Darragh29

jerryob wrote: »

Thanks Darragh29 and Hammertime.

They [bank managers] are well trained in tempting you on board, I find. One annoying thing I found re: the BoI "startup package" (and probably other banks) is that their credit card only offer 15days (on average) repayment terms. To me, this is a cash card. Anyhow, I'm planning to go to the BoI scraper-for-the-customer manager before signing up, to see if he can add a month on to the payment terms. I don't expect any results, but will be interesting to see what he says.

On a more general note, it is a frustrating environment to start up a HPSU in. My plan ticks all the right "government boxes" to do with knowledge-based, internationally traded, significant IP, patent portfolio, tangible assets, etc. While there are good supports for indigenous-trading startups, there is a chasm of supports for technology HPSUs that need significant phased funding before breakeven. We should take a leaf from the Israeli book - they've trackled the early funding issue, and look at the amount of IPO's coming out of there now.

Anyway, this is drifting off the original scope, but is a topic that needs further debate in the appropriate forum.

Very good idea, while I'm still on topic, based on recent experiences, I was looking at starting up an organisation exclusively for entrepreneurs, folks starting up small businesses. The organisation would also have a lending capacity, like a credit union, but would also be something like BNI (Business Networks International). I think it is obvious that there is a lending and overall support gap for people who are entrepreneurs but do not come from wealthy backrounds and who cannot expect the bank to support them. To the OP,my advice is to forget the bank if you can. Try private equity...

jerryob

Darragh29,
That's a fine idea. Are you thinking along the lines of the Business Angel Network, out of the BIC's? Or probably something more entrepreneurial focused, than solely a financing vehicle? I haven't attended any BNI meetings, so can't comment there. PM me if you progress it further.

Re: OP, that was my original thinking also, but wanted to "research" the bank loaning options. There is enough business risk in what I am proposing, not to have to gear the company with debt. While I'll be pitching to private investors early '09, I intend pitching highup in EI before that, to finance my "HPSU" rather than they showering me with rhetoric. I do know that their '08 HPSU funnel is low, so hope they'll give me fair hearing.

information

jerryob wrote: »

I intend pitching highup in EI before that, to finance my "HPSU" rather than they showering me with rhetoric. I do know that their '08 HPSU funnel is low, so hope they'll give me fair hearing.

So you're a self declared High Potential Start Up ?

jerryob

information wrote: »

So you're a self declared High Potential Start Up ?

wouldn't it be nice to be able to declare oneself a HPSU. No, alas, it's my intent to build towards one, hence my "" [HPSU in quotes]. In the semiconductor business, if you can't become a HPSU, then there's no point in wasting ones time.

Faanaraj

jerryob wrote: »

wouldn't it be nice to be able to declare oneself a HPSU. No, alas, it's my intent to build towards one, hence my "" [HPSU in quotes]. In the semiconductor business, if you can't become a HPSU, then there's no point in wasting ones time.

Yes, that's a great idea and you can just try doing that...
But, it's already August and you are trying to get loan from past 3 months that's really bad. Why cant you try some where else, who are fast in service...

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Flexitimer

hi
As far as I've heard it's catch 22 and you sort of have to go along with it but apparently make sure you get the letter back when you've paid off that loan as I've heard of situations where banks have used it against clients many years/loans later so take care.
Best of luck

Faanaraj

Hey Flexitimer,

Yes, you are right. We should first get back our letter after repaying the debt, otherwise it may misplaced or misused.

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Stevepike

Even In agree with Faanaraj......
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