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Glossary

What is Personal Guaranty?

Also called: personal guarantee, PG, guarantor

In one sentence: A personal promise by an owner to repay a business loan out of their own assets if the business cannot.

Last updated · Precise SBA editorial

In plain English

A personal guaranty means that if the business cannot repay the loan, the guarantor will, with personal assets. It is separate from the business’s own obligation, and it is why lenders look at the owner’s household finances as well as the business’s. See global cash flow.

Who gives one

Typically the larger owners of the business, and sometimes others the lender requires. If you own the business together with partners or investors, understand who is guaranteeing, and whether each person guarantees all of it or a share.

What it exposes

  • Personal assets, subject to the loan documents and state law.
  • Personal credit, if the loan goes unpaid.
  • Joint assets, which can raise questions for a spouse. Ask your attorney how your household is affected.

Do not confuse it with the SBA guaranty

The SBA guaranty reimburses the lender for part of a loss. It does not reduce what you owe. The glossary entry for the SBA guaranty explains the difference.

Hypothetical example

A business borrows to buy equipment and later closes. The lender collects what it can from the equipment. If a shortfall remains, it can pursue the guarantor for the balance. The SBA’s guaranty to the lender does not cancel that obligation.

Questions to ask before signing

  1. Who else is guaranteeing, and for how much?
  2. Which of my assets could be reached?
  3. What happens if I sell the business or an owner leaves?
  4. Can the guaranty be released later, and under what conditions?

What to do with it

Review it with your own attorney. For the lender’s view of your finances, see what lenders look at.

Common questions

Who has to give a personal guaranty?

SBA rules require a full personal guaranty from anyone who owns 20% or more. Lenders may ask others as well. Confirm which owners and affiliates are required in your deal.

Does the SBA guaranty protect me?

No. The SBA guaranty protects the lender. You still owe the full loan, and your personal guaranty is separate.

Can I limit my exposure?

Sometimes, through structure, how much of the loan is secured, or negotiated terms. Talk to your attorney before signing, and ask what assets could be reached.

Related terms

Global Cash FlowA combined view of the business and the owner’s household that tests whether all income can cover all debt payments, business and personal.Sources and UsesA table of what a project costs in total (uses) and where each dollar comes from (sources), which must match.

Go deeper

SBA 7(a) Loans Explained in Plain EnglishThe SBA's most common program is flexible, but it is a bank loan with a government guaranty, not a government loan. Here is how it actually works.What SBA Lenders Look At: DSCR and Global Cash Flow in Plain EnglishLenders mostly ask one question: is there enough cash to make every payment, with room to spare? Answering it takes two views, the business and you.

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General information, not legal, tax or financial advice. Precise SBA is not affiliated with the U.S. Small Business Administration. Rules and lender policies change. Examples use hypothetical numbers. We never charge you. If a loan closes, the lender may pay us a referral fee, disclosed on SBA Form 159 (how we get paid). Back to the glossary.