Personal Guarantee

Full definition

A personal guarantee eliminates the legal separation between the borrower entity and the individual. When a small business owner signs a personal guarantee on a business loan, the lender can pursue the owner's personal savings, property, and income if the business defaults - not just business assets. In consumer personal loans: All unsecured personal loans already involve individual personal liability by default - you sign for the loan personally. The personal guarantee concept becomes most relevant in the small business context. However, when a third party (co-signer or guarantor) signs for a personal loan, they are executing a personal guarantee. Co-signer vs. guarantor distinction: A co-signer is equally liable from day one - the lender can pursue the co-signer immediately upon default without first trying to collect from the primary borrower. A guarantor (in jurisdictions that distinguish the two) is a secondary obligor - the lender must first exhaust collection efforts against the primary borrower before pursuing the guarantor. In practice, most consumer co-signers function as co-borrowers with immediate joint liability. Risks for guarantors: The guaranteed debt shows on the guarantor's credit report. Late payments and defaults hurt the guarantor's score. If the primary borrower stops paying, the lender will contact the guarantor for repayment. The guarantor's personal assets (wages via garnishment, bank accounts, property) may be subject to collection. Getting released from a personal guarantee: Typically requires either full repayment of the loan, a formal co-signer release process (refinancing without the guarantor), or negotiation with the lender.

• Co-signer
• Co-Borrower
• Guarantor
• Default
• Co-signer Release