Deficiency

Definition

What is still owed after the collateral is sold and the proceeds applied.

Why It Matters

This is where the personal guarantee stops being an abstraction. Business assets rarely fetch their book value in a forced sale, so the gap between what the loan owes and what the sale raises is a personal debt, pursued from the guarantor rather than the company. It is the number that makes collateral coverage worth checking before closing rather than after, and the reason a deal financed almost entirely against goodwill carries a different personal risk from one secured by equipment.

In numbers: A $900,000 balance against equipment and inventory that raise $350,000 at auction leaves a $550,000 deficiency the guarantor owes personally.