A personal guarantee is a signed promise that you will repay your business's loan with your own money if the business can't. It lets the lender pursue your personal assets, such as savings or home equity, after a default, even if your company is an LLC or corporation. Most small-business lenders require one from each major owner.
This article is general education, not legal advice. Have an attorney review any guarantee before you sign it.
Why do lenders require a personal guarantee if I have an LLC?
Forming an LLC or corporation separates your personal assets from the company's debts. That protection is exactly what a lender wants to get around when the business itself has limited assets or a short track record. A guarantee reconnects you to the debt.
Lenders give three reasons for requiring one:
- Thin business credit. A young company often has little credit history of its own. The owner has years of it.
- Limited collateral. Many small businesses don't own enough hard assets to secure the loan fully.
- Alignment. An owner who is personally on the hook is more likely to prioritize the loan payment when cash is tight.
Some loan programs make guarantees mandatory. For SBA loans, the SBA's current lending rules (SOP 50 10 8, effective June 1, 2025) require an unlimited, full personal guarantee from anyone who owns 20% or more of the business. That requirement is not negotiable with the lender.
What types of personal guarantees are there?
Guarantees vary more than most borrowers realize. The type matters as much as the loan amount.
| Type | What you're liable for | Where you'll see it |
|---|---|---|
| Unlimited | The full balance, plus interest, fees, and collection costs | Most common in small-business lending; required for 20%+ owners on SBA loans |
| Limited (capped) | Up to a fixed dollar amount or a percentage of the loan | Negotiated deals, minority owners, stronger borrowers |
| Joint and several | Each guarantor can be pursued for the entire amount, not just their share | Common default when multiple owners sign |
| Several (pro rata) | Only your share, usually matched to your ownership percentage | Negotiated deals with multiple owners |
| Secured | Liability backed by a lien on a specific personal asset, such as your home | Larger loans, weaker credit profiles |
| Validity or performance | Only losses caused by specific misconduct, such as fraud or diverting receivables | Some real estate loans and merchant cash advances |
A validity or performance guarantee is much narrower than a payment guarantee. It is triggered by what you do, not by the business simply running out of money. Read the trigger language closely, since some contracts define "misconduct" broadly.
What happens if my business defaults?
The sequence usually goes like this:
- The business misses payments and the loan goes into default under the contract's terms.
- The lender demands payment from the business and, often at the same time, from the guarantors.
- The lender collects what it can from collateral, such as equipment, receivables, or other assets covered by its lien.
- The lender pursues the guarantors for the rest. Many guarantees are "guarantees of payment," which let the lender come to you directly without first exhausting its remedies against the business.
- If you don't pay, the lender can sue. A court judgment can allow bank levies, wage garnishment, or liens on personal property, subject to your state's exemptions.
How much could each owner owe?
Say two hypothetical partners each own 50% of a restaurant that borrows $200,000. The business defaults, and the lender collects $80,000 by selling equipment. $120,000 is still owed.
| Guarantee structure | Most the lender can pursue from Partner 1 | From Partner 2 |
|---|---|---|
| Unlimited, joint and several | $120,000 | $120,000 (lender collects $120,000 total, from either or both) |
| Several, 50/50 | $60,000 | $60,000 |
| Limited, capped at $50,000 each | $50,000 | $50,000 (lender absorbs the remaining $20,000) |
Joint and several liability is the one that surprises partners. If one partner has no money to collect, the other can be pursued for the entire $120,000. They may have a claim against their partner afterward, but that is a separate fight.
Does a personal guarantee affect my personal credit?
Signing one usually doesn't, on its own. A guaranteed business loan often isn't reported on your personal credit file while it's in good standing, though practices vary by lender. The lender will likely pull your personal credit during underwriting, which may add an inquiry.
Default is different. If the lender pursues you as guarantor, a collection account, a charge-off, or a lawsuit can show up and damage your score for years. Ask each lender whether it reports to the personal bureaus, and under what circumstances.
Can my spouse be required to sign?
Generally not just because you're married. Under the Equal Credit Opportunity Act and its implementing rule, Regulation B, a lender can't require your spouse's signature, as a guarantor or otherwise, if you qualify on your own. It also can't demand guarantees only from married owners.
There are exceptions. If you pledge property you own jointly with your spouse as collateral, the lender may require your spouse's signature on the documents needed to make that property available. And if you don't qualify alone, the lender may ask for an additional guarantor, but it cannot insist that the person be your spouse.
Which terms of a personal guarantee can I negotiate?
More than people try to. Outside of SBA loans, these are commonly requested:
- A dollar cap. Limit your liability to a fixed amount, ideally less than the full loan.
- Several instead of joint liability. Tie each owner's exposure to their ownership share.
- A burn-off. The guarantee shrinks or ends after a set number of on-time payments, or once the balance falls below a threshold.
- Excluded assets. Carve out your primary residence or retirement accounts. Retirement accounts often have legal protections of their own, but having it in writing avoids an argument.
- Notice before pursuit. Require the lender to notify you and give you time to cure before coming after personal assets.
- Release on exit. Spell out that you're released if you sell your stake or leave the company.
Your leverage depends on your profile. Strong credit, solid revenue, and competing offers all help. So does collateral. Equipment financing, for example, is secured by the equipment itself, which can reduce how much the lender relies on your personal promise. For unsecured products like term loans and lines of credit, a guarantee is harder to avoid, but its scope is still worth discussing.
Does a personal guarantee end when I leave the business?
Not automatically. A guarantee usually stays in force until the loan is fully repaid or the lender releases you in writing. Selling your shares, resigning as an officer, or changing the company's name doesn't end it.
If you're selling or stepping away, make the release part of the deal. The buyer or remaining owners typically need to refinance the debt or have the lender substitute a new guarantor.
Bankruptcy doesn't automatically end it either. A business bankruptcy doesn't discharge a personal guarantee, because the guarantee is your obligation, not the company's. A personal bankruptcy may discharge it, depending on the chapter and circumstances. That is a question for a bankruptcy attorney.
How do I find out what a lender will require?
Guarantee terms are part of the offer, so compare them the same way you compare rates and fees. Sagamore is a broker, not a lender: one application reaches multiple lending partners, and the initial review uses a soft credit pull that doesn't affect your score. When offers come back, ask about the guarantee on each one before you choose. You can start your application here.
