Should I lend the business my own money or guarantee a loan?

Putting your own money in is a cash event today: the money leaves your account and becomes, at best, an unsecured claim against your own company, ranking behind every secured lender and probably behind your trade suppliers in practice. Guaranteeing external borrowing is not a cash event at all: your money stays where it is, and you accept a contingent liability for someone else's money — a liability that starts at the full loan amount and declines as the loan amortises.

Those are very different risks, and which is worse depends on how much of your liquid net worth the amount represents.

Where lending your own money wins

External short-term money at a 1.18 factor over five months costs $13,500. Your own cash costs nothing in fees and nothing in interest you do not choose to charge yourself.

If you have the money, the gap is genuinely short, and repayment is a timing question rather than a performance question, funding it yourself is obviously right. You control the schedule, there is no personal guarantee to sign, no filing, no covenant, no daily remittance, and no application that appears in your file the next time you borrow.

The $13,500 you did not spend is the whole argument, and it is a good one.

Where guaranteeing wins

A guarantee on a declining balance, with cash in hand, is a strictly better failure position than an injection with nothing left. The interest is the price of that optionality, and where the outcome is genuinely uncertain it is usually worth paying.

The trap in the middle

The worst outcome is the common one: you inject, it is not enough, and you then guarantee external borrowing as well. Now you have spent the cash and taken the contingent liability, and the lender knows you have nothing left to contribute.

Decide the total before you start. If the number is $150,000, do not put in $75,000 and find out. Model the full requirement, then choose the structure once.

Document whichever you choose

An undocumented transfer is the worst of all worlds: it reads to an underwriter as either unexplained revenue or undisclosed debt, it complicates any later claim that you should be repaid, and it weakens the separation between you and the company.

The questions that settle it

1. Is this a timing gap or a performance question? Timing gaps deserve your cash. Performance questions deserve someone else's.
2. What percentage of my liquid net worth is this? Above roughly half, do not inject.
3. What is the total requirement, not the next instalment? Model it fully before you commit anything.
4. If I guarantee, what exactly am I signing? Limited or unlimited, joint or several, continuing or specific to this facility.

What to ask for, and what to refuse

Ask the lender whether the guarantee can be limited to a stated amount, whether it burns down as the loan amortises, and what releases it. All three are sometimes negotiable and never volunteered.

Ask your accountant how the injection should be structured — loan or contribution — because the two have different consequences on tax, on any future sale, and on how you get repaid.

Have the cash flow model that shows the full requirement and the date each dollar is needed. That document improves the loan application and, more importantly, stops you from making this decision in instalments.

Refuse to inject your last liquid reserve into a company whose survival is uncertain. Refuse to sign an unlimited continuing guarantee without asking for a cap. And refuse to move money into the business without paperwork, on the theory that you will sort it out later — you will not, and the person who eventually asks about it will be an underwriter or a buyer.