What is a Personal Guarantee?

What is a Personal Guarantee?

Wealth management company

A personal guarantee is basically an agreement which is made by an entity (a person or any organization) that makes them liable to hold the responsibility for some other party’s debt obligation. This entity that holds that is liable for the debt is known as the guarantor and is usually referred to as the co-signer of a note for issuing loan. Also for a guarantor it is necessary to have a credit history. So in case if the entity for which the guarantor holds the responsibly to pay their debts fails then in that case the guarantor has to pay the loan debts.

What is the importance of a personal guarantee?

The personal guarantee is quite important for those entities that have to borrow a loan but are unable to because of the unavaibility of any credit history.  Also for people who have a credit history but with a very low credit rating which makes them ineligible to qualify for a loan can avail the benefits of the personal guarantee. So what happens is that entities with no credit history or a very low credit score can take help of another trusted entity with a decent credit history in order to get the loan. In this way a personal guarantee is a legal promise which is made by the guarantor on behalf of the borrower assuring that the debts will be paid once the loan period is complete.

What is the purpose of a personal guarantee?

The purpose of the personal guarantee is to provide an additional protection to the loan issuers who can be sure that they will be repaid on time.  A personal guarantee is the significance that the lender who is issuing the loan can claim for the repayment to the guarantor incase of the borrows fails to pay for the debts. It is used to provide security to the findings in any type of business as these are used for credit deals. Normally the personal agreement is sued by small business or any individual. These small business instantly make substantial investments form their own capital. Now in order to have a back they need extra capital executives to seek for the funds with a personal guarantee. Now here the company will have to pay those creditors monthly installments instead of generating returns for their investors. Then these creditors get the legal claim on their assets though the personal guarantee. Thus by using a personal guarantee the issuers can claim for their repayments for a particular loan debt or a credit card.

How does the funding process take place?

For an individual who has been seeking for a personal guarantee will have to include their credit history and its information in the credit application. And for a small business need to have an ‘employer identification number’ and their details related to the financial statements. In some cases a few lenders also require a more elaborated details about the personal assets just for security purposes although this one is optional and solely depend on the lender. Also the business owners should make sure that they have a personal guarantee whenever they are applying for a loan.


In this way a personal guarantee plays an important role for both an individual or any small business who are seeking for a loan but either they don’t have a credit history or have a low credit score.