Personal Guarantee Clause Explained: What You're Promising and What to Change
This page is general information, not legal advice.
A personal guarantee clause makes you personally responsible for a debt or obligation that belongs to someone else. Usually that someone else is your own company. These clauses show up in commercial leases, business loans, equipment finance, supplier credit applications and some service contracts. Many owners set up a company to keep their personal assets separate from business debts, and a personal guarantee undoes that separation for the deal it covers. If the business can't pay, the other side can come after you.
Sometimes a guarantee is the price of getting the deal at all, but how far it reaches can often be negotiated. This page explains how these clauses work and covers five terms that decide how much you are really risking. For each one you get an illustrative example, why it matters, and wording you can propose. How guarantees are read and enforced varies by jurisdiction. Some places add formal requirements or extra protections for spouses and consumers.
The example clauses below are illustrative. They are not taken from any real company's agreement.
How a personal guarantee works
A guarantee is a separate promise that sits alongside the main contract. The business is the tenant, borrower or customer, and you are the guarantor. If the business defaults, the landlord, lender or supplier can usually demand payment from you directly. The guarantee often keeps running if the company closes, is sold or becomes insolvent. Read it as if the business won't be around to pay, because that is the only time the guarantee matters.
1. No cap on the amount
A typical clause might read: "Guarantor unconditionally guarantees the full and punctual payment and performance of all obligations of Tenant under the Lease, whether now existing or hereafter arising."
Why it works against you
"All obligations" has no ceiling. In a lease, that can mean rent for the rest of a long term, repair costs, the landlord's damages and anything else the tenant owes. Your personal exposure can end up much bigger than the deposit or the first year's rent you had in mind. See commercial lease red flags.
What to ask for instead
Sample wording to propose: "Guarantor's total liability under this Guarantee will not exceed [amount], or [number] months of base rent, whichever is less, including all interest, fees and costs."
2. Payment on demand, with every defense waived
A typical clause might read: "Landlord may proceed against Guarantor without first proceeding against Tenant, any security deposit or any other guarantor. Guarantor waives all suretyship defenses, notice of default and presentment."
Why it works against you
This lets the other side skip the business entirely and come straight to you, even if there's a deposit or collateral it could use first. Waiving notice means you may not hear about a default until the bill has grown. Waiving "suretyship defenses" can strip protections the law would otherwise give a guarantor, and what those protections are depends on where you are.
What to ask for instead
Sample wording to propose: "Landlord will give Guarantor written notice of any default and 30 days to cure it. Landlord will first apply any security deposit and make written demand on Tenant before seeking payment from Guarantor."
3. A continuing guarantee that covers future changes
A typical clause might read: "This Guarantee is continuing and shall remain in effect notwithstanding any renewal, extension, amendment or assignment of the Lease, whether or not Guarantor consents."
Why it works against you
The business could renew the lease, add space, take on new credit or be sold, and your guarantee may follow every change without your sign-off. That matters most if you leave the company or sell your stake, because you can still be on the hook for a business you no longer control. Watch for renewals that happen automatically. See auto-renewal clauses explained.
What to ask for instead
Sample wording to propose: "This Guarantee covers only the initial term of the Lease as signed. Any renewal, extension, increase in obligations or assignment requires Guarantor's prior written consent, or Guarantor is released for obligations arising afterward."
4. Joint and several liability with co-guarantors
A typical clause might read: "If more than one person signs this Guarantee, their obligations are joint and several, and Landlord may enforce this Guarantee against any one or more of them for the full amount."
Why it works against you
If you and a business partner both sign, the other side can pursue whichever of you is easier to collect from, for the whole amount. You may then have to chase your partner for their share yourself. Some agreements also ask a spouse to sign, which can put shared household assets at risk. Rules on spousal guarantees vary by jurisdiction.
What to ask for instead
Sample wording to propose: "Each Guarantor is liable only for [percentage] of the guaranteed obligations, and no Guarantor's liability exceeds that share. No spouse of a Guarantor is required to sign this Guarantee."
5. Interest, fees and legal costs piled on top
A typical clause might read: "Guarantor shall pay all costs of enforcing this Guarantee, including attorneys' fees, together with interest on all unpaid amounts at the default rate under the Lease."
Why it works against you
Even a capped guarantee can grow if fees, default interest and the other side's legal costs sit outside the cap. If the main contract also has steep late charges, they can stack up quickly. See late payment fee clauses explained.
What to ask for instead
Sample wording to propose: "All interest, fees and enforcement costs count toward the liability cap. Each party bears its own legal costs unless a court orders otherwise."
Also worth a look
Ask for a burn-off, where the guarantee shrinks or ends after a set period of on-time payment. Also ask for a clear release when the business moves out, is sold or replaces you with a new guarantor. Check whether the guarantee sends disputes to a distant court (see governing law and jurisdiction clauses explained). Look for indemnities that widen what you're covering (see indemnification clauses explained). If you're renting a home and a parent or friend is co-signing, see lease agreement red flags.
Scan your own agreement free
One word like "unconditionally" or "continuing" can change what you personally owe. Upload your lease or agreement (PDF, DOCX, TXT or MD, or just photograph it) to the ScanMyTerms lease agreement checker. In about a minute you get a list of clauses that work against you, with the risk level, the exact wording, why it hurts and how to change it. The free preview needs no sign-up and shows the risk count and the first two findings. The full report is $5. ScanMyTerms does not use your documents to train AI models, and reports are deleted after 7 days.
This page is general information, not legal advice. Guarantee rules vary by jurisdiction, so before you sign anything that puts your personal assets on the line, talk to a qualified lawyer where you live.
Sources
- All clause examples on this page are illustrative and written for this guide. They are not quoted from any real company's agreement.
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