A personal guarantee is a legal and binding commitment on the part of a business executive or partner to use his or her personal assets to pay any business debts that are not repaid by the business on a timely basis. They are frequently required when a business seeks to obtain a loan, line of credit, or other form of financing in order to fund its operations. The primary purpose of this type of arrangement is to provide creditors with some additional level of security, in the event that the borrower fails to make payments as scheduled.

Personal guarantees are usually provided by business owners, shareholders, or other executives, who can be held accountable for unpaid business debts in the event of a business failure. The individual assuming personal liability must agree to provide the creditor with whatever assets they can access to settle all outstanding debts. Those assets may include, but are not limited to, a personal bank account, real estate, investments, and wages. Creditors also have recourse, if necessary, to collect collateral associated with the loan, and to take legal action if all other avenues have been exhausted.

It is important for business owners to fully understand their liability when making a personal commitment. Failing to understand the liabilities attached to a personal guarantee can have serious financial and legal consequences. It is important to note that a personal guarantee is typically required in addition to any security provided by a business. Consequently, business owners should be aware of the full extent of the commitment when entering into a loan agreement or extending credit to their business.

For business owners, personal guarantees can be risky since it involves potentially putting their assets at some level of risk. Thus, business owners must assess the situation carefully, review all the associated risks, and understand the obligations that are required before signing a personal guarantee.

A personal guarantee can be a useful tool for businesses who want to access credit and financing in order to grow their business, but it is an important commitment that could have serious implications if the business fails to meet its payment obligations. Business owners must be aware of the potential implications of a personal guarantee before committing themselves and determining if it is suitable for their needs.