Can a lender require my spouse to guarantee my business acquisition loan?
A lender can make a spouse’s guarantee a condition of lending, because it chooses its own security, though the federal small business loan guidelines do not require one. Under those guidelines a guarantor’s liability is capped at the amount signed plus interest and costs, and the lender must take reasonable steps to collect from guarantors.
Lenders decide what security they need before they advance money, and a guarantee from a spouse is one thing they can ask for. Nothing in the federal small business loan program requires it. Whether a lender asks is its own decision, so the more useful question is what the guarantee would commit your spouse to.
Who decides
The Canada Small Business Financing Program’s guidelines say a lender may wish to further secure a loan with a personal or corporate guarantee, and may take security over other business assets. Guarantees are the lender’s option, not a program requirement. BDC says it assesses the complete financing structure when it reviews a request. In both cases the lender, not the borrower, decides whether to ask for a guarantor.
What a guarantor signs
Under the program guidelines, realization on a personal guarantee is limited to the amount signed plus interest, costs and legal fees. Where several people guarantee, liability can be joint and several or individual, and the lender must take reasonable steps to collect from guarantors, so a guarantor can be pursued directly. Ask which form of liability is intended and get the amount in writing.
Whether the guarantee is secured
Program guidelines treat personal guarantees as unsecured, and a loan may be ineligible if the lender takes a guarantee secured by collateral assets, subject to the remedies the guidelines describe. A loan outside the program is not governed by those guidelines, so ask your lender whether the guarantee would be backed by a mortgage on a home or other property.
Québec and the family home
Where one spouse owns an immovable with fewer than five dwellings that is used in whole or in part as the family residence, Québec’s Civil Code requires the other spouse’s written consent before it is charged with a real right. That matters if a lender asks for security over the home as well as a signature.
Questions to put to the lender
- Is the guarantee limited to a stated amount, and is it joint and several?
- Is it secured against any property?
- Does the lender expect the guarantor to take independent legal advice?
- On what terms would the guarantee be reduced or released?
Sources
This answer is checked against primary sources. Links were last confirmed on the dates shown.
- 01Innovation, Science and Economic Development CanadaGovernmentCanada Small Business Financing Program — Guidelines
- 02Innovation, Science and Economic Development CanadaGovernmentCanada Small Business Financing Program
- 03Business Development Bank of CanadaIndustryBusiness Purchase or Transfer Loan
- 04Éditeur officiel du QuébecGovernmentCCQ-1991 - Civil Code of Québec
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