SCORE Small Business Blog

Growing: Personal Guarantees, then 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

-Peg Corwin, SCORE Chicago
View more posts by Peg

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Discussion (2) Comment

  1. Thanks, Marti, for sharing your experiences. We can hope this will help others avoid such problems.

  2. MartiVisitor

    I learned this lesson in a start-up context, although it was not my own business. I was an officer of the corporation and as such was asked to personally guarantee a company credit card. I trusted the CEO and my colleagues and unwisely agreed. A new CEO and CFO were hired a few months later and in a cash crunch, they fell behind on the credit card payments. When I applied for a mortgage, I had late payments on my credit report because of those delayed payments on the company credit card I had personally guaranteed. Never again!!

    Marti Benjamin, President
    Business Energetix–Success Coaching


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