Are You Personally Liable for Business Loans?

Many business owners assume their company will bear the debt, but often you as the owner are ultimately responsible. Personal liability usually comes from a personal guarantee (PG) that you sign. Under a PG, if the business can’t pay a loan, the lender can seize your personal assets (home, car, savings, etc.) to cover the debt. Understanding which debts carry this risk is crucial:

• SBA loans: Nearly all SBA loans require owners (typically anyone with ≥20% ownership) to sign an unlimited personal guarantee. That means if the loan defaults, the lender can pursue any of the guarantor’s personal assets.

• Merchant Cash Advances (MCAs): MCAs are unsecured advances, but almost every MCA lender requires a personal guarantee (often unlimited). In practice, MCAs also come with UCC liens, giving the lender legal claim to business (and via the PG, personal) assets. Defaulting on an MCA lets the lender go after your savings, property, vehicles or other investments.

• Business credit cards and lines of credit: Most business credit cards include a personal guarantee clause. When you signed up, you agreed that you are personally liable for unpaid balances if the business can’t pay. Depending on the card, this liability might be limited (only up to a set amount) or unlimited (the full balance plus fees).

• Other business loans: Many banks and alternative lenders (equipment financing, merchant loans, etc.) require personal guarantees or collateral. Always read loan documents carefully: if you signed a PG or pledged personal property, you could be on the hook.

Entity Structure Matters: Sole proprietors have no legal separation—business debt is personal debt. Creditors can go after both business and personal assets. LLCs and corporations normally shield owners’ personal wealth, but signing a personal guarantee nullifies that shield. (Misusing the corporate entity – like mixing personal and business funds – can also “pierce the veil,” making owners liable.) In short, without a PG, owners of an LLC or corporation generally aren’t liable for business debts. But if you sign on the dotted line, you become a co-signer on the loan.

If business loans with personal guarantees go unpaid, consequences can be severe. Lenders may sue you and levy judgments against your personal property. They will often report late or defaulted payments to credit bureaus, harming your personal credit score. You could even face legal judgments or wage garnishment in extreme cases.



How Better Future Finance Helps: Better Future Finance can review your debt agreements and advise on how to protect yourself. Their team negotiates with business creditors (much as they do for consumer debt) to reduce balances or restructure loans, which can prevent lawsuits. They also work with attorneys if needed to help defend against aggressive collection tactics. In short, they guide clients through the nuances of personal vs. business liability and seek solutions that keep personal assets safe.