A personal guarantee is a legally binding commitment made by an individual to personally assume responsibility for the repayment of a debt or obligation. Personal guarantees are often required when a business owner seeks financing or credit, such as a loan or a line of credit, and may be required in addition to collateral (such as a lien on business assets).
A personal guarantee can take the form of a written document signed by the individual, or it may be implied through the individual’s actions (such as co-signing a loan or credit application). In a personal guarantee, the individual agrees to be personally responsible for repaying the debt if the business is unable to do so. This means that the individual’s personal assets, such as a home or savings account, may be at risk if the business defaults on the loan or credit obligation.
Personal guarantees can be a risk for individuals, as they may be held responsible for repaying the debt even if the business fails or is unable to pay. As such, it is important for individuals to carefully consider the risks and potential financial implications of a personal guarantee before agreeing to one. It may also be advisable for individuals to seek legal counsel before entering into a personal guarantee.
