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Personal Guarantee for a Business Loan

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Definition:

A personal guarantee for a business loan is required in many cases by the lender because the business has no collateral (assets) which can be sold to help pay back the loan and no history of profits which can be relied on for payment.

A personal guarantee may be secured by personal assets, like the owner's home equity, or it may be unsecured, based only on the good faith assurances of the borrower. The guarantee requires the borrower to promise to make good on the loan, even if the business cannot repay.

A personal guarantee may be required from the business owner even if the business is a separate legal entity, like a corporation or LLC.

 

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