What type of assurance is often required for larger loans?

Personal guarantees from the borrower are often required for larger loans as they provide an additional layer of security for the lender. A personal guarantee is a legally binding agreement in which an individual agrees to be responsible for the loan if the borrower defaults. This is particularly important for larger loans because lenders want to mitigate their risk. By obtaining a personal guarantee, lenders can confidently extend larger sums, knowing that they have recourse to recover funds through the borrower’s personal assets if necessary.

In the context of lending, especially in agricultural financing, lenders assess various factors such as creditworthiness and the overall business plan. However, the human aspect—an individual's commitment to repay the loan—can carry significant weight in decision-making. Larger loans typically involve substantial risk, so having a personal guarantee helps reassure lenders that the borrower is personally invested in the successful repayment of the loan.