JW: Absolutely; anyone that the borrower would like to serve as guarantor can be added to the loan. Family, friends, other employees of the business, etc. can all serve as guarantors. The bank cannot say they want a specific person to serve as guarantor, but the bank can say that without additional guarantor support, they cannot approve the loan request.

Another alternative besides personal guarantees is for someone to provide additional collateral for the loan. Someone could agree to keep a certificate of deposit (CD) at the bank and pledge that CD to support the loan. This way, that person is not a direct guarantor on the loan.

JW: The only requirement a bank might have is that all owners, members, or shareholders of a company have to serve as guarantors on a loan. If there are just one or two primary or majority shareholders, then the bank might require these individuals serve as guarantors. However, the bank might say that in order for the loan to be approved, the borrower will need to bring in additional guarantor support. It is then up to the borrower to decide who else could be brought in to guarantee a loan.

JW: A bank will typically want personal guarantees from all the shareholders in this scenario. Additionally, these are usually unlimited guarantees, meaning each guarantor is responsible for the total of all debts owed to the bank. There is also a limited guarantee, which sets a dollar limit on a particular person’s guarantee. Even with limited guarantees, the bank will usually want greater than 100% coverage of the loan amount to help ensure that it is protected. In the example above, the bank might agree to each owner guaranteeing 25% of the loan amount, so that the bank has a total of 125% guarantee. The structure of the limited guarantee will, in part, be determined by the individual financial strength of each of the guarantors as well as their ownership percentage of the business.

JW: The bank does not want to get involved in the day-to-day operations of the business. It would be very unusual for the bank to require the hiring or firing of anyone in a customer’s business. The bank might bring attention to the fact that a certain skill set might be needed or that a certain individual was potentially not the best fit for a certain position.

An investor or shareholder in the business would be more likely to require this type of action.

JW: Their options are going to be very limited. Their best bet would be to approach friends and family for a loan. Friends and family will typically be willing to give much more lenient credit terms than a bank. Utilizing credit cards would be another option to get started. They could also look into various loan programs such as loans backed by the SBA or other special loan programs a bank might be offering (e.g., loans given to business owners who complete a specialized course or courses). They could also research any grant programs that provide funds in the industry in which they were trying to start the business.

JW: A new business is typically seen as a greater risk than an established business. A business which has increasing revenue and profitability is typically seen as a better risk than one which has decreasing revenue and/or profitability. Someone with lots of credit (e.g., high credit card balances, a home mortgage and a home equity line, car loans, student loans) is a higher risk than someone with little or no debt.

If at all possible, always pay all of your bills on time, don’t open too many credit cards or carry high balances on your credit cards, and don’t apply for a lot of credit all at once.