Personal Guarantee

Category: legal

A legal agreement making a business owner personally liable for a commercial loan if the business entity defaults.

A personal guarantee breaks the corporate veil. Because small businesses have high failure rates, institutional lenders require the founders to sign a personal guarantee, allowing the bank to seize personal assets (like homes or savings accounts) if the business cash flow fails to service the debt.

Common Examples

• The bank refused to issue the $500,000 line of credit unless the two co-founders signed an unlimited personal guarantee.
• Securing a limited personal guarantee caps your personal exposure to a specific percentage of the total outstanding debt balance.