A personal guarantee is an agreement. The guarantors are responsible for repaying the loan with their personal assets; if a business is unable to finish repaying a loan.
This type of agreement is commonly required when you borrow capital from any bank; and also applies to many business credit cards. Traditionally, it is signed by anybody who at least owns 25% of the business.
Different Types of Agreements:
Some of them offer more protection for you and your business partners.
Unlimited Guarantee – is the only agreement available for a single-owner business, there’s a possibility that limitations are negotiable with your lender upon the agreement.
Limited Guarantee – the type of guarantee that are being used for businesses with multiple business partners are signing for a loan.
Two different types of limited guarantee:
Several Guarantee – means that you and your partner are responsible for a set percentage of the outstanding capital and legal fees. It is more desirable because each partner knows and agrees to how much they’ll be responsible for ahead of time.
Joint and Several Guarantee – This type of agreement could lead to problems between you and the other guarantors if something should go wrong because each guarantor is responsible for the full amount of the loan.
Read the fine print before signing a contract.