It is crucial to understand the full extent of your financial liability and obligations before signing a personal guarantee. A personal guarantee holds you personally responsible for the debts of a business or entity, meaning that if the business defaults, creditors can pursue your personal assets, including savings, property, and other investments. There are a few key terms to include in a personal guarantee. Be sure to look out for terms such as “indemnification,” “default,” “term length,” and “dispute resolution” just to name a few. Additionally, assess the implications of any clauses related to the guarantee’s enforceability, limitations on liability, and conditions under which it can be terminated.
If you are offering a personal guarantee, assess the financial stability of the company, consider the impact on your credit, and determine if you can afford to cover the debts if needed. Evaluate the borrower’s track record and experience in the industry, as well as the business’s capability and market conditions. Additionally, perform a thorough review of the full terms of the loan or sale and any associated risks. It’s advisable to seek advice from a business attorney to make sure your interests are protected, as well as to explore any alternatives that may limit your risk.
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