Agreement of Personal Guarantee: What it is and Why it Matters

When it comes to business financing, there are often agreements involved that establish the responsibilities and liabilities of all parties involved. One such agreement is the agreement of personal guarantee, which is a legal document that outlines the personal responsibility of a guarantor for the repayment of a loan or debt.

In simple terms, a personal guarantee is a promise made by an individual to pay back a debt if the borrower is unable to do so. This means that, in the event of default, the guarantor`s personal assets can be seized to pay off the debt. A personal guarantee is typically required when a borrower is considered a high risk or when a lender wants extra assurance that they will be repaid.

Many business owners may be hesitant about agreeing to a personal guarantee, as it puts their personal assets on the line. However, in some cases, it may be the only way to secure financing. It is important to carefully consider the terms of the agreement before signing, as some lenders may include provisions that allow them to seize assets beyond those explicitly listed in the agreement.

Another important factor to consider is the impact that a personal guarantee can have on a guarantor`s credit score. Defaulting on a loan that is backed by a personal guarantee can significantly damage a person`s credit and make it difficult to secure future financing.

Despite the potential risks, agreeing to a personal guarantee can also have benefits for a borrower. It may make it easier to obtain financing or improve the terms of the loan, such as a lower interest rate or longer repayment period. Additionally, lenders may be more willing to work with borrowers who have a personal stake in the repayment of the loan.

In conclusion, an agreement of personal guarantee is a legal document that establishes the personal responsibility of a guarantor for the repayment of a loan or debt. While it may be a risky proposition, agreeing to a personal guarantee can also provide benefits for borrowers. It is important to carefully consider the terms of the agreement before signing and to be aware of the potential impact on personal credit in the event of default.