Personal Guarantee Agreement Template (Free Download + AI Generator)

Accessing loans or business credit often requires more than just a good business plan—lenders want assurance that someone will personally stand behind the debt. That’s where a Personal Guarantee Agreement comes in. This legally binding contract makes an individual (the guarantor) personally responsible for repaying a loan or obligation if the borrower defaults.

In 2025, with lending standards tightening across banks and private lenders, personal guarantees are more common than ever. According to Bankrate, 59% of small businesses used a personal guarantee to secure funding, highlighting how widespread this practice remains.

Download the free Personal Guarantee Agreement or customize one with our AI Generator — then have a local attorney review before you sign.

Table of Contents

1. What is a Personal Guarantee Agreement?

2. Why Personal Guarantee Agreements Matter in 2025

3. Key Components of a Personal Guarantee Agreement

4. Types of Personal Guarantees Explained

5. Step-by-Step Guide to Drafting a Personal Guarantee Agreement

6. Legal Context and Enforceability

7. Global Practices Around Personal Guarantees

8. Tips for Signing or Requesting a Personal Guarantee

9. Personal Guarantee Agreement Checklist

10. FAQs

1. What is a Personal Guarantee Agreement?

A Personal Guarantee Agreement is a legal promise by an individual to repay a debt if the borrower—such as a business, family member, or tenant—fails to meet obligations. It gives lenders added security by extending liability beyond the primary borrower.

While often used in business loans, personal guarantees are also common in commercial leases, equipment financing, and private loans. The guarantor essentially acts as a co-signer, pledging their own assets as backup.

2. Why Personal Guarantee Agreements Matter in 2025

In today’s economy, lenders face increased risks from defaults, so personal guarantees are a way to share that risk.

• Credit access: Borrowers with limited credit history may secure financing by offering a guarantor.

• Reduced lender risk: Guarantees assure repayment even if the business fails.

• Wider financing options: Some banks and leasing companies only lend with a personal guarantee.

• Stronger negotiation position: Borrowers may obtain better rates or terms when guarantees are included.

According to the U.S. Small Business Administration’s analysis, small business loan approval rates dropped to approximately 51% at the end of 2023, down from nearly 55% in December 2019.

3. Key Components of a Personal Guarantee Agreement

A valid personal guarantee should always include:

• Parties involved: Borrower, lender, and guarantor(s).

• Loan or obligation details: Amount, purpose, and repayment terms.

• Scope of guarantee: Whether it covers all obligations (unlimited) or only part of the debt.

• Duration: Time period the guarantor remains liable.

• Conditions of enforcement: When the lender can demand repayment from guarantor.

• Waivers: Often includes waiver of rights like requiring the lender to exhaust remedies against borrower first.

• Signatures and notarization: Proof of informed consent and enforceability.

4. Types of Personal Guarantees Explained

Not all guarantees are the same. The two most common types are:

• Unlimited personal guarantee: The guarantor is liable for the full debt, plus interest, fees, and collection costs. Common in small business lending.

• Limited personal guarantee: Caps liability at a specific amount or percentage of the debt. Often used with multiple guarantors who share risk.

• Other variations include joint guarantees (where multiple guarantors are equally liable) and continuing guarantees that cover future obligations as well.

5. Step-by-Step Guide to Drafting a Personal Guarantee Agreement

• Step 1 — Identify parties: Borrower, lender, and guarantor(s).

• Step 2 — Describe obligation: State loan amount, repayment terms, and purpose.

• Step 3 — Define guarantee type: Unlimited or limited, joint or individual.

• Step 4 — Add enforcement conditions: Outline when the lender may pursue guarantor repayment.

• Step 5 — Include waivers: Specify rights the guarantor gives up, such as requiring the lender to sue borrower first.

• Step 6 — Review terms: Ensure guarantor understands risks.

• Step 7 — Sign and notarize: Execute agreement formally for enforceability.

6. Legal Context and Enforceability

Personal guarantees are widely enforceable in U.S. courts, provided they are clear and voluntarily signed.

Key legal points:

• Must be in writing to be enforceable under the Statute of Frauds.

• Courts uphold guarantees unless they are unconscionable or signed under duress.

• Guarantors may defend against claims if the lender materially changes loan terms without their consent.

• Bankruptcy law may discharge guarantor liability in some cases, though creditors often challenge this.

7. Global Practices Around Personal Guarantees

Different countries approach personal guarantees differently:

• United States: Common in small business and commercial lending.

• Canada: Often required in small business loans; courts enforce strict disclosure.

• United Kingdom: Business directors frequently provide personal guarantees, though consumer protections are strong.

• Australia: Guarantees are subject to strict consumer credit laws, requiring lenders to ensure guarantors understand risks.

• India: Personal guarantees from company directors are standard practice, with courts aggressively enforcing liability.

This global diversity highlights the need for local legal advice when signing cross-border agreements.

8. Tips for Signing or Requesting a Personal Guarantee

• Assess financial risk: Guarantors should evaluate whether they can realistically cover the obligation.

• Negotiate limitations: Request caps on liability or expiration dates.

• Review borrower’s finances: Ensure the borrower has the capacity to repay.

• Consider collateral alternatives: Sometimes lenders accept collateral in place of a full guarantee.

• Seek legal counsel: A lawyer can help clarify obligations and potential risks.

By applying these practices, guarantors avoid overexposure and borrowers secure financing more responsibly.

9. Personal Guarantee Agreement Checklist

• Names of borrower, lender, and guarantor

• Loan details (amount, repayment, purpose)

• Guarantee type (limited or unlimited)

• Duration of guarantee

• Enforcement conditions

• Waivers of guarantor rights

• Signatures and notarization

• Compliance with state and federal law

Download the Full Checklist Here

10. FAQs

Q: What risks do guarantors face in a personal guarantee agreement?
A: Guarantors risk their personal assets—such as savings, income, or even property—if the borrower defaults. In unlimited guarantees, liability may extend to interest, penalties, and legal costs. This can impact credit scores and future borrowing capacity. For this reason, legal counsel is strongly recommended before signing.

Q: Can a guarantor limit their liability?
A: Yes, through a limited guarantee. This restricts liability to a fixed dollar amount or percentage of debt. Negotiating such terms is common in multi-guarantor arrangements, where responsibility is shared. Limited guarantees protect guarantors while still offering lenders security. However, lenders may demand higher interest in exchange.

Q: Are personal guarantees enforceable if the borrower declares bankruptcy?
A: Generally, yes. Borrower bankruptcy does not automatically release guarantors, and lenders may pursue guarantors directly. However, guarantors themselves may seek bankruptcy protection if repayment is impossible. Courts carefully review such cases, and guarantors should be aware that liability may survive the borrower’s insolvency.

Q: Can guarantors revoke their personal guarantee?
A: Typically, no—once signed, the guarantee is binding for the duration stated in the agreement. Some continuing guarantees can be revoked for future obligations if the guarantor gives written notice, but revocation does not eliminate liability for existing debts. Always read the termination provisions carefully.

Q: Do personal guarantees affect credit reports?
A: Indirectly, yes. Guarantees may not appear immediately on credit reports, but if the borrower defaults, collection activity against the guarantor will. Missed payments or lawsuits tied to the guarantee can damage credit. For business owners, this may also blur the line between personal and business finances, affecting future lending opportunities.

Disclaimer

This article provides general information for educational purposes only and is not legal advice. Guarantee laws vary by jurisdiction, and obligations can create significant financial risk. Always consult an attorney before drafting or signing a personal guarantee agreement.

Get Started Today!

A personal guarantee agreement can open doors to financing but comes with serious responsibilities. In 2025, lenders increasingly rely on guarantees to manage risk. By carefully drafting, negotiating, and reviewing these agreements, borrowers and guarantors can strike a balance between opportunity and protection.

Download the free Personal Guarantee Agreement or customize one with our AI Generator — then have a local attorney review before you sign.