Personal Guarantees: A, B, and C Pockets for an Entrepreneur’s Family Assets

In the early 1980’s, serial entrepreneur Dick Fontaine and his wife Barbara faced difficult times when his bank called loans that Fontaine had personally guaranteed.

“I never dreamed (or chose not to acknowledge) that I was putting our entire net worth at risk.  I learned the hard way that personal guarantees put the guarantor at real risk.  Of course, I also didn’t foresee a 21% prime rate.”

After the bank called his business loans, Dick brought the family together for a conference.  His teen-age daughter was less worried about dinner next month than her fashion image, saying “This won’t affect my clothing budget, will it, Dad?”

Different Pockets for Family Assets

Wife Barbara had more serious and long-term concerns.  She advocated this division for family assets going forward:

“A” = Keeps you off welfare

“B” = Keeps you to the lifestyle you are accustomed, i.e. new car ever so often, vacations, kids’ schooling, etc

“C = “Las Vegas” money to be used for entrepreneurial projects, especially if it looks like it is going into a black hole.

Years later, when Fontaine became an adjunct professor of entrepreneurship at Westminster College in Salt Lake City, he invited Barbara to talk to his classes.  She told prospective entrepreneurs that risks they take can impact their families in unexpected ways.  To avoid these problems, she advised them to make the A, B, and C divisions for family assets.

Lessons Learned

After his experience, Fontaine has not personally guaranteed any more business loans.  Here are his recommendations for today’s entrepreneurs:

“Treat loan guarantees as a cash investment. Better yet, avoid them  If you’re required to provide them, negotiate an event-triggered or time-triggered release from the guarantee in writing from the lender going in.”

But Fontaine also believes that “losing all your money is not the worst thing in the world. It forces you to examine the priorities in your life, teaches you what’s really important, tests you in important ways, and is appropriately humbling.”

I am honored to have met the Fontaines on a trip to Alaska’s Glacier Bay, pictured above.

Entrepreneurs should be careful with loan guarantees and should maintain personal reserves of cash and assets, regardless of their passion for their business. SCORE counselors can help you assess your risks.  In fact, SCORE Chicago’s mission includes risk counseling:

we not only help entrepreneurs realize their dreams of success, but also help entrepreneurs understand the risks and commitment required to start a business. Success can be measured in insuring clients don’t risk their future by putting all their resources into business ventures that have no chance of success.

How do you think about risking personal assets in your business? Please share your thoughts in a post.

Related links:

Should You Personally Guarantee a Loan to Your Small Business?

Business Owner’s Toolkit:  Personal Guarantees

Betting Your Retirement on Your Start-Up

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2 Responses to “Personal Guarantees: A, B, and C Pockets for an Entrepreneur’s Family Assets”

  1. Laura Maver Ward Says:

    Peg,

    This is great advice to anyone who is considering the acquisition or start of a business. Owning your own business is risky. I’ve seen too many business owners lose “the farm” because they couldn’t make enough money to sustain the business, let alone meet their personal commitments.

    In our mergers and acquisitions firm, we are constantly having the tough discussions with prospective entrepreneurial buyers. Our mission is to help them fully understand all of the risks related to business ownership.

    Yesterday, I facilitated a presentation on Angel investing in Kansas City, Missouri, as I am an Angel investor with the Women’s Capital Connection. A woman came up to us after the presentation. She was excited and energized. She works for a business that is shutting the doors (not saleable) and wants to pick up where that business owner left off. There were 3 women at the table. Two who sold their business within the last 5 years and me. I have owned my own business owner for the past 6 years.

    All three of us said…”Slow down, do your homework and make sure you realize what you are getting into when you start your own business. Owning your own business may look easy on the surface. It’s not! It’s risky and it’s demanding! It’s takes money and it takes a great deal of hard work. It’s a 24/7 proposition.”

    If you don’t have to put up personal guarantees don’t do it. Unfortunately, when you obtain an loan that is backed by the SBA, then be prepared for the personal guarantees they require, especially when goodwill is involved.

    Laura Maver Ward, CBI, CBC, CSBA, CMEA
    President, Dovetail Business Advisors
    President, National Association of Women Business Owners-KC
    http://www.dovetailadvisors.com
    http://www.dovetailadvisorsblog.com

  2. 5 Keys To A Successful Loan Application « Learned At SCORE Chicago Says:

    [...] Post: Personal Guarantees, Then A, B, and C Pockets for Family Assets Posted in Financing and Loans. Tags: business loan, loan application, loan package, preparing a [...]


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