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Managing Risk: Personal Guarantees From Merchants |
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For years, banks and ISOs have relied on the additional security of a personal guarantee when establishing merchant accounts for most small and medium-sized businesses. The idea is simple: The guarantor (usually the business owner) legally agrees to be personally responsible for all debts the business fails to pay. This lets the bank or ISO sidestep this liability protection and permits the bank or ISO to collect on the debts of the business directly from the owner who has guaranteed those debts. More typically, businesses are set up as corporations, limited partnerships, or limited liability companies, and those business structures legally protect the owners from the creditors of the business.
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