A personal guarantee is a commitment by a business owner to repay a corporate debt personally if the business cannot, making the owner’s personal assets available to the lender in a default.
Most Canadian banks require personal guarantees from the principals of small and medium-sized businesses as a condition of corporate financing. The guarantee is not symbolic. It is a binding legal obligation that survives corporate insolvency and exposes personal assets, including the home, savings, and investment accounts, to the lender’s claim.
The guarantee may be limited, capped at a specific dollar amount or a percentage of the debt, or unlimited, covering the entire outstanding balance plus interest and costs. It may be joint and several across multiple guarantors, meaning any one guarantor can be pursued for the full amount regardless of how ownership is divided. Business owners who sign personal guarantees without reading the specific terms, or who assume a limited guarantee applies when it is actually unlimited, discover the difference at the worst possible moment.
See also: Security and Collateral · PPSA (Personal Property Security Act) · Demand LoanUnderstanding exactly what is being personally guaranteed before signing is not optional. See how Wefinx approaches Virtual CFO services.