Glossary · Credit management
Personal guarantee
A personal guarantee is a promise by an individual, usually a director or owner, to pay a company’s debt personally if the company doesn’t.
Limited companies protect their owners from the company’s debts. A personal guarantee removes that protection for one creditor: if the company fails to pay, the guarantor is personally liable for the guaranteed amount.
Suppliers ask for guarantees from small or new companies with little credit history, or when a customer wants more credit than its finances justify. It is often part of the credit application.
A guarantee is only as good as its drafting and the guarantor’s means. It must be in writing and properly signed, and its scope — which debts, up to what amount, for how long — should be clear.
Example
A newly formed company asks for a €30,000 credit limit. The supplier agrees on condition that the managing director signs a personal guarantee for up to €30,000.