Credit Guaranties: Fair Value and Fair Market Value
Thomas Jefferson was driven to virtual bankruptcy by the financial failure of a close friend, whose debt Jefferson had guaranteed.1 Two hundred years later credit guaranties are commonplace in the financial structure of small, closely held businesses. Today, as in Jefferson's time, questions regarding the financial implications of credit guaranties remain. Do credit guaranties carry a cost? Do they have value? Should they be considered in the valuation process? This paper addresses those and other financial issues related to credit guaranties.
Contributor Notes
R. Gary Saliba is Co-Founder of Pretium Capital has spent the last 14 years valuing businesses and managing money as a Registered Investment Advisor. Gary earned a Graduate Degree from the Southwestern Graduate School of Banking at Southern Methodist University, and also holds MBA, CFA, CFP designations. He is an enrolled advisor with the Internal Revenue Service and is an Accredited Senior Appraiser (ASA) with the American Society of Appraisers.
Jason K. Chung is a Co-Founder of Pretium Capital. At Pretium he is an advisor to growing companies in the areas of valuation, raising capital, strategic partnering and investment banking. Jason holds an MBA from Wake Forest University, Babcock Graduate School of Management, and a BA from Vanderbilt University.
Dr. Thomas Hall serves as Director of the Program in Banking, Finance, and Innovation at the University of Alabama in Huntsville. He is also an Assistant Professor of Finance in the Department of Economics and Finance. A graduate of the Johns Hopkins University, he received a Ph.D. from the Economics Department at the University of Southern California.