Should You Sign a Personal Guarantee?

Recently I was reading a post on a social forum. The commentator was a business owner complaining that their bank required a Personal Guarantee in order to setup a merchant account allowing them to accept credit/debit cards. The strict wording of the Personal Guarantee was also of concern to this person. They did not like how, even in death, it gave the bank the right to pursue legal action against their heirs, administrators, etc.

They were advised to try another service provider. Their next post was about how happy they were with a provider they found who did not make them sign a guarantee. All they had to do was pay 3%+ in processing fees and the bank placed $10,000 of their own money on reserve for 6 months or for the life of the account.

Do not be fooled! Holding $10,000 of your own money in a non interest baring account and charging you way more than you need to pay is just a back door way of getting a personal guarantee out of you and making more money doing it. If you can't or wont personally guarantee the legitimacy of your business then the bank will by taking your own money and holding it in case you process credit cards and decide to take the money and run without delivering product or services.

If the situation did arise whereby they had to pay back the card holder for undelivered product/services, they've already got the money to do that with. they are "guaranteed" that money will not come out of their own pockets. But, at what cost to the business owner?

$10,000 could have earned that person a significant amount of money had they been able to invest it. Even keeping it in the bank would have, at least, earned them some interest on their own money.

Not only is that person out the interest and/or investments they could have earned with the ability to have access to their own money, but their rates were much higher than they needed to be. Had they simply signed the Personal Guarantee they could have saved and earned potentially thousands of dollars more annually.

The Personal Guarantee is necessary and, with the recent down turn of the economy, it's here to stay. It is understandable why a business owner would not wish to expose themselves or their heirs to any liabilities, however, try to consider the costs and weigh the options before choosing to allow the merchant service provider to hold your money and increase your rates.

If you know that your business will operate in good faith fashion in accordance with all standard and legal guidelines and regulations then, chances are, you could save your company time and money by signing that guarantee and never face any negative consequences for having done so. The strong wording scares most merchants away from doing this, but would not be enforced unless the business operates in an illegal manner costing the merchant service provider money.

Ultimately, the final decision is up to the business owner as to whether they choose to opt for a reserve in place of a guarantee. No one likes to feel as though they are exposing themselves, but there may be advantages that overcome the strong wording and the possible exposure. It is up to each individual business owner looking to establish a merchant account to determine what is best for them.