Definition of Personal guarantee:
The term personal guarantee refers to an individual’s legal promise to repay credit issued to a business for which they serve as an executive or partner. Providing a personal guarantee means that if the business becomes unable to repay the debt, the individual assumes personal responsibility for the balance. Personal guarantees provide an extra level of protection to credit issuers who want to make sure they will be repaid.
Personal guarantees are used in credit deals to secure funding for businesses. They are used by new and small businesses—generally, for companies that may not be as established or for those with inadequate credit history to qualify for loans and other credit on their own. When a personal guarantee is given, the principals of the company pledge their own assets and agree to repay a debt from personal capital in case the company defaults. In short, the business owner or principal becomes a cosigner on the credit application.
Agreement that make one liable for ones own or a third partys debts or obligations. A personal guarantee signifies that the lender (obligee) can lay claim to the guarantors assets in case of the borrower (obligor) default. It is equivalent of a signed blank check without a date. The obligee is generally not required to seek repayment first from the obligors assets before going after guarantors assets. The lenders actions are usually based on whose assets are easier to take control of and sell. Once signed, a personal guarantee can only be cancelled by the obligee.
How to use Personal guarantee in a sentence?
- Business owners should read the terms and conditions of any credit application carefully for language that highlights personal liability.
- A personal guarantee is an individual’s legal promise to repay credit issued to a business for which they serve as an executive or partner. .
- Enforcing personal guarantees also mitigates the risk to creditors since they have a legal claim to an individual's assets.
- Personal guarantees help businesses get credit when they aren't as established or have an inadequate credit history to qualify on their own.
Meaning of Personal guarantee & Personal guarantee Definition