Personal Guarantee

Personal guarantees exist because most privately held small and medium-sized businesses do not have enough independent credit history for a lender to underwrite the entity alone. The PG is how the lender solves that problem: it collateralizes the deal with the owner's personal assets and creditworthiness in addition to the business's.

Not all PGs are equal. An unlimited PG makes the guarantor liable for the full outstanding balance regardless of the business's assets. A limited PG caps liability at a specified dollar amount. A several PG makes each guarantor liable only for their pro-rata share. And a validity guarantee is narrower still — the guarantor is only liable if they misrepresented the collateral. The difference between an unlimited PG and a limited PG on a $2M facility is the difference between betting your house and betting a defined amount.

Every SBA 7(a) loan requires an unlimited PG from any owner holding 20% or more of the business. This is not negotiable at the SBA level. Conventional bank lines to businesses with limited credit history almost always require a PG as well; the question is which type.

Reducing or removing the PG is possible, but it is an outcome of the business's fundability improving — stronger bank rating, mature business credit file, documented cash flow, cleaner financials. It is not a term you negotiate at the closing table; it is a term you earn before the term sheet is drafted. That is what a properly engineered fundability build makes negotiable.