Personal Guarantee

A personal guarantee (PG) is a contract in which an individual, typically the owner or a principal of the customer, agrees to be personally liable for the business's obligations to the seller. If the company defaults or files bankruptcy, the seller can pursue the guarantor's personal assets. For thinly capitalized customers, new businesses, and closely held companies, the PG is often the only meaningful recourse a trade creditor has, because the corporate entity may have no reachable assets.

A useful PG has specific mechanics. It should be a continuing guarantee covering present and future obligations, signed by the individual in their personal capacity (not as an officer, which can render it worthless), ideally unlimited or with a cap comfortably above the credit limit, and drafted to survive changes in the account. Many sellers embed the guarantee in the credit application; the signature block must clearly separate the corporate signature from the personal one, or courts may find the individual signed only on behalf of the company.

The PG also works as a screening device. A principal who refuses to guarantee a modest credit line for their own company is communicating something about their confidence in the business, and that refusal is itself underwriting information. Conversely, credit managers should periodically confirm guarantees remain in force after ownership changes, and remember that a guarantee is only as good as the guarantor: pulling a personal credit report (with proper authorization) or checking for existing judgments is warranted on larger lines.