In business, “PG” is shorthand for a personal guarantee: a written promise by an individual, usually an owner, to repay a company’s debt personally if the company doesn’t. Lenders, landlords, and suppliers ask for one when the business itself is too new, too small, or too thinly capitalized to stand behind its own obligations. Signing a PG means the liability protection you get from an LLC or corporation no longer applies to that specific debt. Your house, your savings, and your paycheck are back on the table.
How a Personal Guarantee Works
A personal guarantee is a separate contract between you (the guarantor) and the creditor. The business signs the loan or lease; you sign the guarantee alongside it. If the business defaults, the creditor can turn to you directly for payment.
The key feature is that the guarantee is its own obligation. Even if the business dissolves, goes into bankruptcy, or simply disappears, your promise to the creditor survives. In most guarantee agreements the creditor doesn’t have to sue the business first or exhaust its assets before coming after you. Once the business misses payments, the creditor can move against your personal bank accounts, real estate, and other property.
Types of Personal Guarantees
Not every PG carries the same risk. The type you sign controls how much you could lose.
- Unlimited guarantee. You’re responsible for the entire outstanding balance plus collection costs, legal fees, and accrued interest. This is the most common form and the most dangerous for the guarantor.
- Limited guarantee. Your liability is capped at a specific dollar figure or percentage of the debt. Guarantee 30% of a $500,000 loan and your maximum exposure is $150,000, no matter what the business ultimately owes.
- Joint and several guarantee. Multiple owners share a single pool of liability. The creditor can collect the guaranteed amount from any one guarantor, or any combination. If your partner disappears, you can be pursued for the full guaranteed sum.li>
- Several guarantee. Each guarantor is independently liable up to a stated amount, and one guarantor’s payment doesn’t reduce what another owes. Two guarantors each signing a several guarantee of $500,000 on a $1,000,000 loan gives the lender potential access to the full loan amount.
- Validity guarantee. Common in invoice factoring and accounts receivable financing. It only triggers if the business commits fraud, misrepresents its receivables, or misappropriates collected funds. The guarantor isn’t liable for ordinary business failure, only for dishonesty.
The joint-and-several versus several distinction confuses a lot of owners. Joint and several sounds worse because of the word “several,” but it actually means the guarantors share one pool of liability. A truly several guarantee can create more total exposure, because each person independently owes the creditor up to the cap.
Bad Boy Carve-Outs
Some loans are non-recourse, meaning the lender can seize the collateral but can’t pursue the borrower personally. The catch is a “bad boy” carve-out, a clause that flips the entire loan to full recourse if the borrower or guarantor commits certain acts. Typical triggers include fraud, misappropriation of funds, unauthorized transfers of collateral, or filing bankruptcy without the lender’s consent. If any of those happen, the guarantor suddenly owes the full balance.
When You’ll Be Asked to Sign One
SBA Loans
The Small Business Administration requires personal guarantees by regulation. Under 13 CFR 120.160, anyone holding at least 20% ownership in the borrowing business generally must guarantee the loan.1eCFR. 13 CFR 120.160 – Loan Conditions The SBA can also require guarantees from other individuals it considers necessary for credit reasons, regardless of ownership. Unlike a private bank loan, this one isn’t really negotiable at the threshold. If you own 20% or more and want a 7(a) loan, you’re signing.
Commercial Leases
Landlords almost always demand a PG from tenants that are newly formed entities with no financial track record. Even established businesses can face this ask if their balance sheet doesn’t inspire confidence. The guarantee protects the landlord if the business closes mid-lease and walks away from years of remaining rent.
Two lease-specific structures are worth knowing. A “good-guy guarantee” ties liability to occupancy: give proper notice, surrender the space in good condition, pay all rent through the surrender date, and you’re released from future obligations. A “burn-down” provision gradually reduces your exposure over the lease term, usually contingent on paying on time. Both are negotiable, and landlords who initially present unlimited guarantees will often accept one of these instead.
Bank Credit and Startup Financing
Startups with minimal tangible assets rarely qualify for credit without a PG. Banks need something to fall back on when the business has no real estate, no equipment, and no revenue history. Even businesses with a few years of operations may face this requirement on revolving credit lines, equipment financing, or merchant cash advances.
Can a Creditor Require Your Spouse to Sign?
Usually not. Under the Equal Credit Opportunity Act, implemented through Regulation B, a creditor cannot require your spouse’s signature on a credit instrument if you independently qualify for the credit.2eCFR. 12 CFR 1002.7 – Rules Concerning Extensions of Credit The same protection applies to guarantors: a lender can’t demand a guarantor’s spouse co-sign just because they’re married.
There’s a narrow exception in the nine community property states. If you don’t have enough separate property to qualify on your own, the creditor may require your spouse’s signature on instruments necessary to make community property available for repayment. Outside that scenario, a lender who insists both spouses sign is violating federal law. If a loan officer tells you it’s required, ask which ECOA exception they’re relying on.
What Happens If the Business Defaults
Miss payments on guaranteed debt and the creditor can pursue you personally. The sequence typically starts with demand letters, moves to a lawsuit, and ends with a court judgment. That judgment unlocks the real collection tools: wage garnishment, bank levies, and liens against real property including your home. Federal law caps wage garnishment for commercial debt at the lesser of 25% of your disposable earnings or the amount by which weekly earnings exceed 30 times the federal minimum wage.3Office of the Law Revision Counsel. 15 US Code 1673 – Restriction on Garnishment Some states prohibit wage garnishment for commercial debt entirely, and others set lower caps. Home equity may have some protection through state homestead exemptions, which vary widely.
Your personal credit takes a hit too. A default usually appears on your credit report once you’re three to six months behind, though some lenders report earlier. A judgment or collection account can remain on your report for up to seven years. A personal bankruptcy filing stays for up to ten. The credit damage often outlives the debt.
Does Bankruptcy Wipe Out a PG?
Filing bankruptcy for the business does not eliminate your personal guarantee. The entity and the guarantor are separate legal persons with separate obligations. To discharge the guarantee itself, you have to file personal bankruptcy.
In a Chapter 7, a personal guarantee is generally dischargeable as an unsecured debt. That said, the discharge won’t apply if the creditor can prove the underlying debt was obtained through fraud, false pretenses, or material misrepresentation.4Office of the Law Revision Counsel. 11 US Code 523 – Exceptions to Discharge Guarantees tied to an honest business failure are the ones most cleanly wiped out. Guarantees on loans obtained with fabricated financials are the ones creditors fight.
Negotiating Before You Sign
Most owners treat PGs as take-it-or-leave-it. They aren’t. Creditors expect some negotiation, and there is real room to reduce your exposure.
- Cap the dollar amount. Ask for a limited guarantee. Even a cap at 50% or 75% of the loan meaningfully changes the risk.
- Add a burn-down. Have the guaranteed amount decrease as the business builds a payment history, and expire entirely after a set number of on-time years.
- Require the creditor to pursue business assets first. Without this language, most guarantees let the creditor skip the business and target your personal accounts immediately.
- Set performance-based triggers. Have the guarantee activate only after a defined number of missed payments or a drop in the business’s net worth below a threshold, so a single late payment doesn’t put you at risk.
- Put an expiration date on it. A guarantee that ends after three or five years gives you a defined finish line. Lenders are more open to this than owners expect, especially for a growing business.
Leverage grows as the business matures. A guarantee accepted at startup is worth renegotiating when you refinance or renew a lease. Point to your payment history and improved financials. Landlords and lenders who said no at year one may say yes at year three.
Getting Out of a Guarantee You Already Signed
Ending a PG after signing is harder than negotiating better terms upfront. The cleanest path is repaying the underlying debt in full; once the loan or lease obligation is satisfied, the guarantee terminates because there’s nothing left to guarantee.
For a continuing guarantee that covers future advances or renewals, you can usually send written notice of revocation. Revocation only applies to new debt created after the creditor receives the notice. Existing balances, and renewals or extensions of debt already outstanding, stay guaranteed. The notice normally has to be sent by registered mail to a specific address named in the agreement.
Resigning as a director or officer doesn’t end your guarantee unless the document says so. Selling your ownership stake doesn’t automatically release you either. If you’re exiting a business, negotiate a formal written release from the creditor as part of the deal, signed by an authorized representative. A verbal “we’ll take you off” has no legal value.
What Makes a PG Enforceable
A personal guarantee must be in writing and signed by the guarantor. This comes from the Statute of Frauds, adopted in every state, which requires that a promise to pay someone else’s debt be documented in a signed writing. A verbal promise to cover your partner’s business loan is not enforceable.
The document should identify the guarantor, reference the specific debt covered, and state the scope of the obligation: limited or unlimited, joint and several or several. Vague language about which debt is covered can give a guarantor grounds to challenge enforcement later.
Notarization is not required. A signature alone satisfies the Statute of Frauds. Many lenders still ask for it because it makes a later forgery claim much harder to sustain. The notary verifies the signer’s identity; the notary does not review or approve the legal terms. Read the terms yourself, or have a lawyer read them, before you sign. Once your name is on a PG, the protections you thought you got from forming an LLC no longer cover that debt.