Personal Guarantee
Definition
A personal guarantee is a legal commitment by a business owner to be personally responsible for repaying a business debt if the business cannot. When a lender requires a personal guarantee, the business owner's personal assets (home, savings, vehicles) can be seized to satisfy the debt in the event of default. Most small business loans, MCAs, and lines of credit require a personal guarantee. Some lenders offer 'limited' personal guarantees that cap personal liability at a percentage of the outstanding balance. SBA loans always require personal guarantees from owners with 20% or more ownership.
Example
A business owner personally guarantees a $200,000 business loan. The business fails and cannot repay. The lender can pursue the owner's personal assets, including placing a lien on their home, to recover the outstanding balance.
Related Terms
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SBA Loans
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UCC Filing (UCC-1)
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