Do business loans require a personal guarantee?

Do business loans require a personal guarantee? There is no single rule that applies to every loan in Canada. What the lender asks for is set by the lender, and by the program’s rules if the loan is government-backed. BDC, a federal Crown corporation, says that banks usually need some kind of guarantee in case you can’t pay back your loan. This page looks at what BDC says, what the federal program allows, and what to ask before you sign.

What BDC says about collateral and guarantees

BDC’s article on getting a business loan without collateral says that without tangible collateral, you will generally be required to sign a personal guarantee to obtain a working capital loan. BDC also says collateral can include the business owner’s personal assets. If your business has tangible assets, ask the lender whether it will accept them as security and whether it still wants a personal guarantee.

What the Canada Small Business Financing Program allows

For loans under the Canada Small Business Financing Program, the Canada Small Business Financing Regulations say a lender, in addition to the primary security, may take one or more unsecured personal guarantees or suretyships, up to an aggregate amount that section 19 sets out. The word is “may”. The program’s guidelines likewise say a lender may wish to further secure a loan with a personal or corporate guarantee. So the program permits a guarantee and limits it. It does not say every borrower must give one.

What to ask the lender

• What security do you require on this loan, and is a personal guarantee part of it?
• Is the guarantee limited to a stated amount, or unlimited?
• Do you need guarantees from other owners or from a spouse?
• What happens to the guarantee if I later sell the business?

If a guarantee is on the table, read the wording closely and have a lawyer review it. If you are weighing release or limits, our page on what a personal guarantee is and whether you can get out of one covers that side.