• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to secondary sidebar
  • Skip to footer

Scale FinanceScale Finance Logo, Interim CFO, Part Time CFO Services, Accounting Support, Temporary CFO, Accounting Bookkeeping Services

Interim CFO, Part Time CFO Services, Accounting Support, Temporary CFO, Accounting Bookkeeping Services

Charlotte · Raleigh – Durham · Chapel Hill · Triad · Southern Pines · Coastal Carolina
Closing the GAAP to Scale Your Business
The FINACA Logo
919-230-4667
Scale Finance, LLC, Financing, North Myrtle Beach, SC
  • Home
  • Services
    • CFO & Controller Services
    • Capital Raise Services
    • Business Valuations
    • Mergers & Acquisitions
    • Professional Consultations at No Cost
  • Professionals
    • Partners
    • Charlotte Team
    • Raleigh – Durham – Chapel Hill Team
    • Greensboro-Southern Pines
    • Coastal Carolina Team
  • Client Experience
    • Closed Capital Raise Transactions
    • Closed M&A Transactions
    • Client Endorsements
    • Information Technology
    • Healthcare, Biopharma & Medical Device
    • Services, Energy, Industrial
    • Consumer, Retail, Media
    • Real Estate
    • Private Equity Groups
  • Recent News
  • Knowledge Bank
    • Best Practices in Scaling Companies
    • Entrepreneurial Management Skill- Building
    • Financial Management
    • Mergers & Acquisitions
    • Regulatory Developments
    • Venture Capital
  • Contact Us
    • Charlotte
    • Raleigh – Durham – Chapel Hill
    • Triad – Southern Pines
    • Coastal Carolina
  • Joining Our Firm

Should Founders Personally Guarantee Bank Loans?

Source: Zach Shulman – Shulman teaches courses on venture capital and law for high-growth businesses. Shulman is also currently a managing partner at Cayuga Venture Fund, a venture capital firm located in Ithaca, New York.

“Should founders personally guaranty bank loans?”   That is actually a funny question because for early startups, the founders cannot get bank loans.   So, let’s assume that we are talking about a startup that is far enough along to get a loan (like for some equipment that can actually be a worthy secured asset).  Perhaps the company has a bit of revenue, but certainly it is not profitable.

If the company has no institutional investors, then I think fully appropriate for the founders to concede to the request (which is inevitable) and give the personal guaranty.  I have known plenty of business founders that are more than willing to do this.  They view it as a non-issue as they consider the business failing “on their nickel” anyway.  If there is no institutional money invested in the company, then the founder is typically in complete control and making the guaranty is a logical extension as the company’s pockets and the founder’s pockets are closely connected.

However, from my perspective, once a company has institutional funding, the personal guaranty dynamic changes completely.  The founder is no longer in complete control.  There are real constituents with whom the founder needs to constantly engage (i.e., the investors and board in particular).  The founder reports to the board and the board can ultimately replace the founder if necessary.  Imagine personally guarantying a loan and then being replaced?  Yikes – don’t count on the bank releasing the guaranty just because the founder is no longer an officer of the company.

The trick is getting the bank to understand the changed dynamic.  Silicon Valley Bank gets it.  They invest on the strength of the venture investors and the fact that the venture investors have a vested interest in the success of the company.  They will ask how much more dry powder the VCs have for the company prior to making the loan.

The “bank” that does not get it is the US government.  SBA programs (there are a bunch of them – the general theme is that the SBA partners with the originating bank and guarantees a large % of the loan on the bank’s books) require personal guarantees from major stockholders.  This includes founders.  It may also include VCs depending on the extent of ownership (trigger is usually 20%).  VCs cannot guaranty loans because their partnership agreements prohibit such activity.  And the founder should not be put in the position of guarantying a loan for a company where the investors have much to say about direction and control issues (which is always the case with VC investments).

Time for the SBA to wake up and take away the requirement.  It makes little sense and hinders what the SBA wants – company growth and economic development.

Primary Sidebar

Knowledge Bank

Hiring a Startup CFO – When to Hire a CFO & Why You Need One

Owner Financing of Small Companies – Debt or Equity Considerations

Will Your Merger be Blindsided by Fraud?

Series C & Beyond: How Growth Investing is Different Than Early Stage

5 Rules for an A+ Board Meeting for Investor-backed Companies

Understanding & Using Your Cash Flow Statement

Why Business Valuations are Helpful (& What do they Typically Cost)?

Managing Merchant Fees – Role of Zero Fee Processing

Can Accountants Value a Business?

Personal Guarantees – Should You Grant One?

10 Pieces of Advice When Someone Wants to Buy Your Company

Convertible Note Financing – Payback Time

Due Diligence Fiasco – A Look Back at HP-Autonomy

Applying for Business Loans – Hard Credit Checks

7 Ways a Business Name Generator Can Help Entrepreneurs

Citizenship by Investment Overview

Understanding the True Cost of Employee Turnover

How to Think About Valuation When Raising Venture Capital

What it Takes to Shift to a Recurring Revenue Model in Hardware & Software

Differences Between Major SBA Loan Programs – SBA 7(a) vs. SBA 504

Explore the Knowledge Bank…

Secondary Sidebar

Recent News

Scale Finance Closes $20M ABL Financing for TRA

Scale Finance Leads the Successful Sale of Carolina Restoration Services

Scale Finance Advises FX HedgePool on $8M Series A Funding

SF Closes Acquisition of Midwest Outdoor Resorts for Travel Resorts of America

Scale Finance Closes $7 Million Senior Debt Financing for Travel Resorts of America

Scale Finance Advises on Acquisition of Falcone Crawl Space & Structural Repair

Congrats to Payzer for Closing $23 Million Equity Financing

SF Client Headbands of Hope Closes Strategic Growth Investment

SF Assists Semper Investment Company in Acquisition of ACM Removal

SF Client SentryOne Acquired by SolarWinds (NYSE: SWI)

Scale Finance Assists GPM with Acquisition by Netsmart

SF Client Broadstep Behavioral Health Continues National Growth Through Acquisitions

SF Client Impact Financial Systems (IFS) Acquired by iPipeline

Scale Finance Assists TrueLearn with Investment by LLR Partners

Scale Finance Assists Textum Weaving with Investment by Quad-C

Scale Finance Closes Debt Financing for Horizon Eye Care

Scale Finance Closes Acquisition of Horsepower Site Services by MCG Civil

More News…

Footer

Media

Scale Finance Managing Director Dave Gilroy interviewed on WSIC Radio (local Fox affiliate)

/wp-content/uploads/2014/02/David-Gilroy-Interview-Local-Biz-Now-2-7-14.mp3

Entrepreneurial Tips

  • Funding Tips from Scale Finance
  • CIE Life Sciences Panel Discussion
  • Why Use Fractional CFO Services

Sign Up—Finance Bulletin

Monthly insights into corporate finance for entrepreneurial companies

Sending

FINACA is a nationwide network of independent finance and accounting consulting firms focused on delivering exceptional client service.

FINACA is a nationwide network of independent finance and accounting consulting firms focused on delivering exceptional client service.

Return to top of page

Copyright © 2008–2023 Scale Finance, LLC
Securities and offering services through Charles Towne Securities, LLC. Members FINRA and SIPC.