Personal Guarantees – Vendors want them. Landlords want them. Bonding companies want them. Even some owners and general contractors want them (say no to these!). So, what is a personal guarantee and what do they mean?
A personal guaranty means that you, the guarantor, are promising to step into the shoes of the person or entity that has or will be incurring some type of debt, most often the business entity that you created to help shield you from personal liability. These are powerful and enforceable promises, lasting years into the future. And they can come about without you meaning them to. If you sign a document, such as a contract, purchase order, loan documents, etc., intending to sign solely as an officer or authorized representative of your company but fail to include your title in the signature block, you may have just personally guaranteed the performance sought in that document.
So, as always, be careful to read – and think about – what you are signing before you sign it. Unless you intend to provide a personal guarantee, be sure to include your title. Whenever possible, get that personal guarantee waived.
For those credit applications, leases and rental obligations — or perhaps for equipment or your office lease — that you had to sign way-back-when because the company did not have sufficient credit to qualify on its own, go back and renegotiate those applications if you can. Sign new agreements that substitute a corporate guaranty for your personal guaranty. You’ll be glad you did.
Next time you or someone you work with ask, “What is a personal guarantee?” you’ll be able to tell them and if they want more information you can point them here. Be sure to contact us if you have additional questions!
© Karen Ensley and Brian Benitez, Ensley Benitez Law, PC., 2021. All rights reserved. This article is provided for educational reasons exclusively and is not meant to be construed as legal advice. Ensley Benitez Law, PC, will represent you only after being retained and that agreement is made in writing.