Personal Guarantee
An agreement to act as guarantor for the debt obligations of another party – such as your company.
When you are seeking business finance, you may decide to offer a personal guarantee as an assurance for a business loan or alternative source of credit. This places you and the lender - such as a bank - in a direct relationship. However, it also presents the risk of you being pursued personally in the event of your company becoming insolvent.
A risk worth taking?
While a personal guarantee can be an attractive option, it is important not to enter one unless you are fully aware of the legal basics of such a contractual relationship. What are the likely consequences if the creditor – such as a bank – moves to enforce the guarantee?Practical Application Example
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What a personal guarantee means in practice is that in the event of your company defaulting on a loan repayment, you have guaranteed that you will step up and pay the outstanding amount yourself. However, the only way a written guarantee can be enforced is if it is in writing and signed by the guarantor. ”
