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Ten Mistakes All Business Owners Should Avoid – Mistake Number 5

T. Randolph Catanese, Esq. © 1998  

Mistake No. 5 – The Business Owner Fails To Protect His Or Her Personal Credit. Most business owners start out the business full of vim and vigor expecting the best. Because they have high expectations and their enthusiasm runs equally as high, they take certain risks with their personal credit that they would never otherwise take. A good example of this is personally guaranteeing a business line of credit, a vendor contract with the new business, or a distribution or material contract with the new business. The vendor is asking for this personal credit guaranty because the vendor knows that there is a high risk with new businesses. They want a personal guaranty so they have someone that they can go after if the business does not work out and the vendor does not get paid. You, as a business owner should avoid, in almost all circumstances, extending any personal guaranty. There are multiple vendors, manufacturers, distributors and others in the United States, all of whom are competing for your business. Most, but not all, will still extend your business credit even without a personal guaranty. Do not be afraid to state that if they want your business they have to do it without your personal guaranty. Furthermore, if you do extend your personal credit, put limitations on the credit so that if things do not work out you do not lose everything that you have worked years to obtain. Again, before any personal guaranty is given you should consult with your attorney and with your professional financial advisor (not to mention your husband or your wife if you have one).