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Question – If I Incorporate but Go Out of Business, Do I Still Have To Pay Back My Loan?

Our Response – The short answer is yes.

When you create an LLC you get liability protection.  If someone sues your business and you weren’t negligent your personal assets are safe, but this does not apply to paying off debts in the event of a business failure. Almost every bank is going to require a personal guarantee for any person with a 20% or more ownership position in a corporation or LLC.  There are loans called non-recourse loans where the bank does not have recourse to get the money back in the event of a business failure.  As you can guess, these funds are very difficult to get as business is risky and many end up failing.  The bank is primarily concerned with getting their money back with a little bit of interest so they take many precautions to make sure they do get their money back.