Defaulting as a Limited Liability Corporation?
I am starting a small, experimental business in Ontario as an LLC, that looks good on paper but I know is risky.
If I take a small loan ($50,000) from a bank or another creditor, with little collateral (my assets are not worth much, less than $10,000), and if my business fails/bankrupts early.. what happens then?
Does the lender take the loss? Is there any liability on me personally?
- Huh?Lv 712 months agoFavourite answer
First, an LLC is a Limited Liability Company, (not a corporation). It is a common error so no blame, but you should learn to use the term correctly.
The loan is almost sure to include a personal guarantee, which means you and the LLC are equally responsible for repaying the loan. Think of it as loan with a co-signer, the LLC is taking out the loan but you are co-signing the loan, Very rarely do lenders today make loans without a personal guarantee from the owners.
The LLC is still valuable because there are other liabilities that do not require personal guarantees for which you will be protected by the limited liability.Source(s): Economic Development Official with 15 years as an adviser to small businesses.
- JohnLv 712 months ago
It's not going to happen, so there's not much point in fantasizing about it.
- Casey YLv 712 months ago
Without enough collateral...they aren't giving you the loan.
There is no way to actually answer your question...since they would never make the loan...so no loss or liability to discuss.
For anything experimental, you need to stay away from banks and focus on angel investors and the like...
- RobertLv 712 months ago
I don't think the lender will give you 50K for a start up with no experience and only 10 in collateral. But if they do I'm willing to bet they will have something in the agreement about you being responsible for repayment. Don't sign anything until your lawyer reads it over