Business is inherently risky, so people look for ways to protect their interests when entering into new contracts. A common business practice is to ask for a personal guarantee if money is exchanging hands. This could apply in a loan contract, or for the sale of a business. If you make a personal guarantee for someone else (the debtor), then you (the guarantor) are promising the lender/seller (the guaranteed party) that you can personally pay back what the debtor owes, if they cannot. It is a big commitment, and you should think carefully about all of your possible options before making a personal guarantee. This article will explain what a personal guarantee is, and things you should consider when signing one.
What Is a Personal Guarantee?
When you make a personal guarantee, as the guarantor, you promise that you can personally cover the debt that a borrower or buyer takes on. You take on the obligation of fulfilling their contract, providing a guarantee that they can hold up their end of the bargain. https://www.worldloans.online/easy-loans-online/ If they are unable to, then it is your responsibility to pay back what they owe and fulfil the contract.
This does not just apply to third parties. As a business owner, you can promise to be personally liable for any debt the business incurs.
A personal guarantee provides security for the guaranteed party, especially if the debtor is inexperienced or does not have reliable credit. The minimum requirements are that the:
- contract with the guarantee must be in writing; and
- guarantor signs this personal guarantee.
You would usually draft a provision in a contract outlining your personal guarantee if you have to give one. Providing such a guarantee may also indemnify the guaranteed party against any losses that happen due to the debtor’s inability to hold up their end of the deal. Continue reading “What Does a Personal Guarantee Mean for my NZ Business?”