Will a business loan affect my personal mortgage?

Owners ask whether a business loan affects a personal mortgage because the two can meet in your own name. No source we reviewed says a business loan changes your mortgage terms directly. What the sources do show is where your personal file enters the picture, and those are the points to check before you borrow.

The personal guarantee

BDC says banks usually need some kind of guarantee in case you cannot repay, and that without tangible collateral you will generally be required to sign a personal guarantee to obtain a working capital loan. BDC also lists the business owner’s personal assets among things that can serve as collateral. Under the CSBFP, the guidelines say personal assets cannot be used as additional security for a CSBF loan, though a lender may take unsecured personal guarantees up to the original amount of the loan disbursed. The same guidelines carve out cases that reach your own property: if you run the business from your own premises and borrow to improve that real property, the lender must take the real property as security, and as a rule a sole proprietor or partnership borrower is liable for repaying the whole CSBF loan disbursed, though the lender and borrower may agree at approval to limit what the lender can realize on personal assets. Ask which kind of guarantee you are being offered, and whether anything of yours is pledged as security.

Your credit report

The Financial Consumer Agency of Canada says a credit report includes mortgage payment history and inquiries from lenders, and that lenders use the report to decide whether to lend. A lender checking your credit adds an inquiry. CSBFP guidelines call for credit checks or credit references on the borrower or those legally or financially responsible for it. The sources do not say how a guaranteed business loan is reported, so ask the lender.

Questions to settle before you sign

• Is a personal guarantee required, and is it secured against any property you own?
• Does the lender report the loan or the guarantee to credit bureaus?
• Does your mortgage agreement say anything about other debts or security? Ask your mortgage lender.
• Would a lawyer look over the guarantee before you sign?

If your borrowing is tied to buying a firm, see financing a mortgage brokerage acquisition for a sector-specific case.