A private loan guarantee can get a small business off the ground or into the next stage. A private loan guarantee is appropriate for early stage companies that, within a year, will turn the corner toward profitability or commence product sales. The limited time frame stems from the fact that loan guarantees typically only last a year, and at the end of that period, the company must be able to raise equity capital to pay off the original loan, or be able to apply for and get a loan based on its own financials. Though this technique is uncommon, the supply is theoretically abundant. The fees and interest on a loan guarantee can be expensive compared with a traditional loan. However, loan guarantees make it possible for an entrepreneur to raise capital without surrendering control, which makes it inexpensive compared with most forms of equity financing.
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