Glossary
Personal guarantee
Also called: director's guarantee, guarantor
A personal guarantee is a promise by an individual, often a company director, to pay a borrower's debt if the borrower does not. It is usually given in a guarantee and indemnity document and can make the guarantor's own assets available to the lender.
An example
A company borrows to fund a renovation of a commercial property it owns. The lender requires both directors to sign personal guarantees, so if the company defaults the lender can pursue the directors for the shortfall.
Why it matters
Guarantees are common in private and commercial lending and can be unlimited in amount. A guarantor should understand exactly what they are guaranteeing, whether there is a limit and how long it lasts, and should obtain independent legal advice before signing.
Points to check
Get legal advice before signing a personal guarantee, and make sure you understand the full amount you could be liable for, including interest and costs. Check whether the guarantor's liability is limited or unlimited, and whether it covers only this loan or all future debts. Ask whether you will be told if the borrower defaults. Personal guarantees often continue until formally released, even after the loan is refinanced.