If you’re starting a business, applying for a loan, or entering into a lease agreement, chances are you’ve come across the term “personal guarantee.” But what exactly does it mean, and why is it so important to understand before signing on the dotted line?
In the simplest terms, a personal guarantee is a legal promise that you, as an individual, will be responsible for repaying a loan or fulfilling a contract if your business can’t. For many entrepreneurs and business owners in Sherwood Park and beyond, it’s a common part of doing business—but it’s not something to take lightly.
At Nigro Manucci, we’ve helped countless clients navigate personal guarantees, ensuring they understand what they’re committing to before making any long-term obligations.
Why Personal Guarantees Exist
H2: Why Lenders and Landlords Require Guarantees
Lenders, landlords, and suppliers often use personal guarantees as a safety net. If your company doesn’t have enough credit history or assets to secure a loan or rental agreement, the guarantee gives them extra peace of mind. It’s like saying, “Don’t worry, if the business fails, I’ll personally take care of it.”
From a legal standpoint, this creates a second avenue of repayment. If your business defaults, the creditor can pursue your personal assets—such as your house, savings, or future wages—to settle the debt.
Types of Personal Guarantees
H2: Not All Guarantees Are the Same
There are several types of personal guarantees, each with different levels of risk and responsibility.
H3: Unlimited Personal Guarantee
This is the most common and also the most risky. It means you’re liable for the entire debt amount, plus any interest, legal fees, and collection costs. There’s no upper limit to what you might owe.
H3: Limited Personal Guarantee
With this version, your liability is capped at a certain amount. For example, you might agree to personally guarantee up to $50,000 of a $200,000 loan. These are typically used when multiple guarantors are involved.
H3: Joint and Several Guarantees
If more than one person signs a joint and several guarantee, the lender can pursue any of the guarantors for the entire debt, not just their portion. This is common in business partnerships.
H3: Continuing Guarantee
This applies to revolving credit or long-term supply agreements. It continues to apply to future transactions until formally revoked.
What Are the Risks?
H2: Why You Shouldn’t Sign Without Legal Advice
It might seem harmless when you’re trying to secure funding or move into a new commercial space. But once you sign a personal guarantee, you’re putting your personal finances on the line.
Common risks include:
- Personal bankruptcy if your business fails
- Lawsuits from creditors seeking repayment
- Losing your home or other assets
- Strained family relationships over financial stress
At Nigro Manucci, we always encourage clients to fully understand the consequences of personal guarantees before making any commitments.
How to Protect Yourself
H2: Tips Before Signing a Personal Guarantee
Before putting pen to paper, ask yourself the following:
H3: Do I Have a Clear Exit Strategy?
Can you revise or cancel the guarantee after a certain period? Try negotiating a clause that releases you once the company proves its creditworthiness.
H3: Can I Limit My Exposure?
Ask if the guarantee can be limited to a fixed dollar amount, or if it can exclude personal assets like your primary residence.
H3: Is My Business Structure Offering Protection?
Incorporating your business offers a layer of protection, but a personal guarantee circumvents that. Understand how this affects your legal shield.
H3: Have I Had It Reviewed by a Lawyer?
Never rely solely on the lender’s wording. At Nigro Manucci, we’ve revised countless agreements to better protect clients’ interests and remove hidden clauses.
Real-Life Example: How One Clause Saved a Client Thousands
We recently helped a client who was ready to sign a personal guarantee on a commercial lease. Upon review, we discovered a clause that would have made her responsible for damages beyond the term of the lease—even if she sold the business.
We renegotiated the clause, added a release-on-sale condition, and saved her potentially tens of thousands in liability. This is exactly why legal review is so critical.
When a Personal Guarantee Might Make Sense
H2: Strategic Use of Personal Guarantees
We don’t want to scare you away from ever using personal guarantees. Sometimes, they’re necessary and even beneficial.
Consider them when:
- You’re starting a new business and have no credit history
- You’re dealing with a trustworthy lender and need leverage
- You’ve negotiated clear limits and exit clauses
In these cases, guarantees can help you:
- Secure financing faster
- Prove commitment to your business
- Strengthen your negotiating position
The key is to understand the terms and never walk in blindly.
Common Misconceptions
H2: Myths About Personal Guarantees
Let’s clear up a few misunderstandings:
- Myth: “I’m incorporated, so I’m protected.”
Fact: A personal guarantee overrides corporate protections. - Myth: “The lender won’t actually come after me.”
Fact: If the business defaults, they absolutely can—and usually do. - Myth: “It’s just paperwork; it won’t matter.”
Fact: That “paperwork” is legally binding and enforceable in court.
What Happens If You Can’t Pay?
H2: The Legal Consequences
If you default on a personal guarantee, creditors can take legal action to collect what’s owed. This may include:
- Garnishing your wages
- Seizing personal property
- Putting liens on your home
- Damaging your personal credit
Having legal support early on can make a huge difference in how things play out. Sometimes, creditors are willing to negotiate settlements or payment plans—especially if they see you’re working with experienced legal counsel like Nigro Manucci.
How Nigro Manucci Can Help
H2: Legal Support You Can Rely On
At Nigro Manucci, we’ve been helping individuals and business owners in Sherwood Park since 1972. Whether you’re just starting out or reviewing an existing guarantee, our legal team can:
- Review contracts and flag risks
- Negotiate better terms
- Draft limited or time-bound guarantees
- Help you exit a guarantee safely
- Represent you if things go sideways
We’re not just here to file paperwork. We’re here to protect your personal and financial well-being.
Final Thoughts
Personal guarantees can be powerful tools or dangerous traps—depending on how they’re used. The most important thing is to approach them with eyes wide open.
If you’re facing a request to sign a personal guarantee in Sherwood Park, don’t do it alone. Let Nigro Manucci help you understand your rights, negotiate fair terms, and protect what matters most.
Ready to Protect Yourself?
If you’re reviewing a personal guarantee or considering signing one, the smartest first step is a legal consultation. Contact Nigro Manucci today to schedule a conversation. We’ll walk you through the details and make sure your signature doesn’t cost you more than you bargained for.