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Personal Guarantees

A personal guarantee is a promise by a person to assume a debt obligation in the event of non-payment by the borrower.

A personal guarantee is usually given to a bank, a landlord or a financial institution by an individual as additional ‘comfort’ for business borrowings such as a loan, asset finance, an overdraft facility or rent due under a lease. Personal guarantees are often required for start up businesses which do not have a proven track record, financing the purchase of an asset, e.g. motor vehicle, or where a lease is granted for premises.

A personal guarantee is given for a certain amount plus costs and expenses and, should the borrower or tenant fail to maintain its payments, is usually payable on demand. The lender does not have to realise the assets of the borrower before pursuing the guarantor. This could result in a bankruptcy petition being issued against the guarantor or the lender exercising its rights in respect of any charge held over the guarantor's personal property held as security for the guarantee.

A personal guarantee can only be cancelled by the lender and the release must be in writing. This is only likely to happen if the borrowings have been repaid in full or other security has been provided.

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