We’ve talked about Personal Guarantees before. We see them most often attached to the end of commercial lease agreements. They are designed to prevent you from removing your LLC’s obligation to pay for a lease if your business starts to go under. In essence, you are guaranteeing that if your LLC cannot meet an obligation of the commercial, you will … personally.
Do We Negotiate?
Sometimes, we are successful with helping gym owners negotiate the terms of a personal guarantee. However, we don’t always get so lucky. It really depends on how amicable the landlord is to negotiating. That usually depends on how competitive your market is. The more competitive, the harder it is to negotiate.
6 Ways To Get You Out Of A Personal Guarantee
However, even if we aren’t successful at negotiating the terms of your personal guarantee, that doesn’t mean the battle is over. We can still try to get you out from under the personal guarantee after you sign. Here are 6 common ways we can do this:
- Show Proof of Business Success – After a year or two of revenue and profits, you can show your landlord your success. Sometimes, this will demonstrate the stability of your business. The more stable you look, the more likely a landlord will allow you to get out of your personal guarantee.
- Ask For An Amendment After 12 or 24 Months: If you’ve paid consistently over a year or two, ask for an amendment of the personal guarantee to reduce your personal exposure. You aren’t necessarily asking for the personal guarantee to go away, just negotiating the terms.
- Ask for An Expiration Date: Similar to #2, if you show consistent payment history, you can ask your landlord to expire the personal guarantee. For example, after the first year, ask for it to expire after the second year if you don’t miss any payments.
- Offer to Pay a Larger Security Deposit: Usually a security deposit covers one month of rent. Offer to my 3 or 4 months up front to avoid a personal guarantee. Or offer to supplement your security deposit after a year once you are making some money.
- Offer to Prepay 6 or 12 months of Rent: When the landlord wants you to sign a personal guarantee it is because the landlord is worried about you being able to pay. If you prepay, that worry is gone.
- Get a Line of Credit From a Bank: This shifts the guarantee from your personal assets to a bank. Yes, you will have to pay back that line of credit. However, your personal assets, like your house, are still protected.
These are only a few ways we’ve been able to get our clients out from under a personal guarantee. Every situation is unique and can present some different opportunities. Reach out to use if we can help you get out from under your personal guarantee.