Key facts

Also called
PG, guaranty, personal guaranty, unlimited or limited guarantee
Where you will see it
Nearly all business loans under a few million dollars, including SBA, online loans, cash advances and leases
Why it matters
If the business fails, the lender can pursue your home equity, savings and wages

What is a personal guarantee?

A personal guarantee is a separate legal promise, signed by you as an individual, that you will cover the business's debt if the business defaults. It sits beside the loan agreement and survives the business closing. If the company winds down owing $120,000, the lender can collect that $120,000 from you.

Lenders ask for it because small businesses fail often and their assets are usually worth little at auction. The SBA requires a guarantee from every owner of 20% or more, and most banks follow the same rule. Our personal guarantees guide covers how to limit one.

How is a personal guarantee used?

A guarantee only comes into play when the business cannot pay.

  • Your company borrows $200,000 over five years and you sign an unlimited personal guarantee.
  • Two years in, the business closes with $120,000 still owed.
  • The lender sells the business collateral and recovers $30,000.
  • You personally owe the remaining $90,000 plus interest and collection costs, and the lender can sue, garnish wages or place a lien on your home.

A limited guarantee caps your exposure, for example at 50% of the balance or a fixed dollar amount. A joint and several guarantee with a partner lets the lender collect the whole amount from either of you.

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What do lenders consider normal?

An unlimited personal guarantee from every owner of 20% or more is the industry standard. Banks, SBA lenders, online lenders, equipment lessors and cash advance providers nearly all require one. Loans without a guarantee typically exist only for larger, established companies with audited financials, or for products secured by strong collateral like real estate.

Spouses are sometimes asked to sign when the family home is the main personal asset. Some lenders accept a limited guarantee for minority owners. Asking for a limit is normal and does not hurt your application, though a bank may say no.

What should you watch for?

Watch for a guarantee that covers more than this loan. Some cover any future debt to the same lender, including a card or line you open later. Ask for it to be limited to this agreement.

Watch for a confession of judgment clause, which lets the lender get a judgment against you without a court hearing. It is common in cash advance contracts and restricted in some states. Watch also for the guarantee surviving a sale of the business: if you sell, make the buyer's lender replace your guarantee. Keep your own copy and read it before the loan agreement, not after.

Related terms

A personal guarantee is the personal counterpart to collateral and a UCC lien, which secure the loan with business assets. It appears on almost every term sheet, and it is why unsecured business loans are never truly unsecured from the owner's side. You will sign one on every SBA 7(a) loan. You can apply here, or ask your AI assistant to flag guarantee terms across your offers and apply for you through our MCP server.

Using Claude, ChatGPT, Gemini or Grok?Connect our MCP server and your assistant can collect your documents, fill the application, match lenders and submit.
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