Personal Guarantees in Business Finance

A personal guarantee is a legal commitment by a business owner (or another individual) to repay a business debt if the business itself cannot. Personal guarantees are extremely common in small business finance in the US. Understanding what you are agreeing to before signing one is important. This page is general educational information only — not legal or financial advice.

What a personal guarantee is

When you sign a personal guarantee, you agree to be personally responsible for the business’s debt if the business defaults. This means the lender can pursue your personal assets — including personal bank accounts, personal property and, in some cases, your home — to recover the debt. A personal guarantee effectively removes the limited liability protection that a business structure (like an LLC or corporation) might otherwise provide for that specific debt.

Unlimited vs limited guarantees

An unlimited personal guarantee means you are personally liable for the full amount of the debt, plus any interest, fees or collection costs. A limited personal guarantee caps your personal liability at a specific amount or percentage of the total debt. Always check which type you are being asked to sign.

Where personal guarantees are commonly required

• SBA loans: the SBA generally requires a personal guarantee from any owner with 20% or more equity in the business.
• Business credit cards: most require at least a soft personal guarantee.
• Equipment finance: common, particularly for newer businesses.
• Merchant cash advances: often required alongside a UCC filing.
• Commercial leases: landlords often require personal guarantees from small business owners.

UCC filings

Many business finance agreements involve a UCC (Uniform Commercial Code) filing. A UCC filing is a lien on your business assets — it gives the lender a legal claim on specified assets (or sometimes all assets, in a “blanket lien”) if you default. This can affect your ability to obtain additional financing, as other lenders will see the existing lien. Check your state’s UCC filing database to see any existing filings against your business.

What happens if you default

If your business defaults and you have signed a personal guarantee, the lender may pursue collection against you personally — not just the business. This can include civil lawsuits, judgments, wage garnishment (if applicable) and damage to your personal credit. Understand these risks before signing.

Before you sign

Have any personal guarantee reviewed by a qualified attorney before signing. Understand whether the guarantee is unlimited or limited, what triggers the guarantee, what assets are covered, and whether the guarantee survives if the business is sold or restructured. SCORE (score.org) offers free business mentoring and can help connect you with advisers.

This page is general educational information only. It is not financial, legal, tax, credit or debt advice. Rules and regulations can change. Always verify current information with official sources before taking any action.