Can I negotiate a cap on my personal guarantee for an acquisition loan?
Yes, a personal guarantee can be written for a stated amount instead of the full loan. Under the Canada Small Business Financing Program a lender may take an unsecured guarantee of up to the loan amount and can enforce only what was signed. On a conventional loan, any cap is whatever the lender agrees in writing.
A personal guarantee does not have to cover the whole loan. It is a contract, and its amount is whatever the signed document says. The Canada Small Business Financing Program guidelines show what a limit looks like when a government program sets the ground rules, which makes them a useful reference point when you ask a lender for a cap.
What the program rules show
The guidelines say a lender can take unsecured personal guarantees up to the original amount of the loan disbursed, and that a program loan may become ineligible if the guarantee is secured by collateral assets. Realization on a guarantee is limited to the amount signed, plus interest, costs and legal fees. Guarantees from several people can be joint and several or individual, and corporate guarantees have no limit on amount.
Fixed amount or share of the balance
The wording of the cap matters. The guidelines give a worked example in which a lender takes a guarantee of a stated amount equal to a share of the original loan, and say it must be enforced for that amount, not for the same share of the balance outstanding at the last payment. Ask whether your cap is a fixed figure or a share of what is still owing, and whether it falls as you repay.
On a conventional loan
The program makes it easier for small businesses to get loans by sharing risk with lenders, and its guarantee rules apply to those program loans. On a conventional loan the terms sit in the lender’s own documents, and BDC says it assesses the complete financing structure. Raise the cap, any step-down as the loan is repaid and what triggers a release early, and have a lawyer draft it. Compare what a personal guarantee is before you sign.
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
Deavo is an advertising and listings platform, not a brokerage, law firm or valuation firm. This page is general information, not legal, tax, accounting or valuation advice, and rules differ by province. Confirm anything you rely on with a qualified professional before you act on it.