Co-signing a guaranty to the SBA or any note. What does it mean?
There is much misunderstanding about a very important subject, co-signing a guaranty for a note to the SBA or any secured lender, here is what you need to know. (This is not a legal analysis and should not be relied upon as such but is merely a general description of legal concepts for your education and better understanding. Seek legal counsel for specific analysis if you are in this situation or have specific questions.)
Unless the guaranty is limited, which means its limited reach is spelled out in the guaranty, for example “limited to include the undersigned real estate but not a general guaranty for the entire debt”, this would mean the signor, guarantor has granted a collateralized position to the lender only against your ownership interst in real estate. FREQUENTLY ASKED OF WIVES.
If not limited by the language in the guaranty, you can consider yourself a guarantor of the entire debt and the lender can reach into any of your assets to perfect its position and liquidate your assets to get paid out, including your home. That’s what a guaranty means.(please seek specific assistance from your attorney)
One danger is in thinking that if you are a co-guarantor with someone else that somehow this means you are responsible for only half the debt…NOT SO! A co-guarantor, or every co-guarantor agrees to be individually liable for the entire debt owed, not just a portion. The lender can look to one individual and collect the entire debt and not even pursue the others if they are less liquid and this is ok.
Another significant misunderstanding that frequently occurs is when a guarantor who may leave the business and receives an agreement from the other guarantors that agrees to hold the leaving guarantor harmless from the liability of the debt, in other words agrees to make the payments in behalf of the leaving guarantor letting the leaving guarantor believe he is off the hook… when in all reality he is not off the hook, as this agreement is between the two guarantors and not the bank and thus the bank has no obligation what so ever to honor this agreement and can still collect agains the exiting guarantor and his assets as if the agreement did not exist between the two borrower guarantors.
Thirdly, beware of the demand for your wife’s signature, its sole intent is to make certain the lender can reach the equity in your home. Make every effort to not have her sign the note to protect the home from future collection efforts should they occur, even at the cost of not getting the loan. Small business loans are far too risky to put your home up as collateral.
Yes they can take your home and even if your wife has not signed they may in some instances liquidate the home and give over to the wife her share of the equity if she was not a guarantor. This of course reduces the value if the liquidation and thus it may not happen at all, but be aware of the possibilities.
There are many instances when a guarantor does not know he actually personally guaranteed a loan because the guaranty is buried in some paragraph that is very difficult to discern or recognize as a personal guaranty. This may be successfully challenged and requires a lawyers specific analysis to determine your rights hereunder.
A personal guaranty requires a personal signature thus when signing any guaranty language or documents be certain to sign as your titled position, be it president, general manager, vice president, etc indicating you are signing on behalf of the business entity not on behalf of yourself personally.
When there is a second signature line and a request for you to sign both as a business entity officer and personally, beware you are accepting the risk personally and you need to understand what that means and what that could cost you. If you sign personally you may be held personally responsible. IF YOU SIGN CORPORATELY AS AN OFFICER YOU MAY NOT BE HELD RESPONSIBLE PERSONALLY. This is a huge difference.
Simply stated, you should always have legal documentation reviewed by a lawyer who works for you or do not sign it until you do. You will be held responsible for what you sign.
