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    Personal Guarantees

    Before you lend money to a business, get a written guarantee of repayment from the business owners. Buy a downloadable easy-to-use Personal Guarantee Form.

     

    Most, if not all, commercial lenders will require a personal guarantee (or guaranty) from the principals of a business before they extend credit facilities to that business. Lenders look at a personal guarantee as a sign that the principals have faith in their business and in its ability to pay its debts, and that they intend to honor the company's commitments. A lender may not want to risk a bad loan if a business owner is not willing to take the risk of having to repay it if the business goes under.

    A personal guarantee gives the lender the means to go after the personal assets of the guarantor if the company defaults on its obligations. That is why lenders and lessors generally require them, and as the percentage of businesses going under increases, the requirement for personal guarantees from directors and business owners will increase as well.

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