A personal guarantee is an agreement in which a business owner or another individual accepts personal responsibility for repaying a business debt if the business fails to meet its obligations. It gives the lender an additional source of repayment beyond the business itself.
Personal guarantees are common with certain small-business loans, particularly when a business has limited credit history, insufficient collateral, or a relatively short operating history. The exact responsibility depends on the language of the agreement, so it should never be treated as a minor formality.
Before signing, understand exactly what you are guaranteeing, whether the guarantee covers the entire debt or a specific amount, and what could happen if the business defaults. You should also determine whether your personal assets could potentially be exposed under the agreement.
A business loan can provide useful capital, but the risks should be understood before borrowing. Reviewing business loan eligibility and the lender’s complete terms can help you prepare before submitting an application.
