When credit is extended to a company, the company is the debtor — and a company’s liability is limited. A personal guarantee is the mechanism that, in some arrangements, extends responsibility for a debt beyond the company itself.
What a personal guarantee is
A personal guarantee is a promise, usually given by a director or owner, that they will personally meet a company’s obligation if the company does not. It is a common feature of trade credit applications, equipment finance and supplier accounts.
Why it matters for recovery
The practical effect is significant. If a company is unable to pay and a valid personal guarantee exists, recovery may be possible against the guarantor. Without one, recovery is generally confined to the company and its assets.
The lesson for creditors
If your business extends meaningful credit, the time to think about guarantees is when the account is opened — not when it goes bad. A clear, properly executed guarantee within your credit application is ordinary commercial prudence. Whether one is appropriate, and whether a particular guarantee is enforceable, are questions for a qualified adviser.
This article is general information, not legal advice. Guarantees are technical documents and their effect depends on drafting and circumstance — obtain advice before relying on one.
If you hold accounts supported by guarantees and are unsure how to proceed, request a consultation.