Personal Guarantee Agreement
This Personal Guarantee Agreement is a legally binding document under which an individual (the guarantor) assumes liability for the obligations of a borrower under a separate loan agreement. It is often sought from a director of a company that is borrowing money, and may sometimes be required from both a director and the director’s spouse. In this scenario, there will be a loan agreement between the lender and the company, and the personal guarantee is signed by the director in favour of the lender.
What does Personal Guarantee Agreement do?
It allows the lender to require the guarantor to repay the loan if the borrower (the company) defaults under the loan agreement, with the guarantor’s liability being “on demand” (so there is no waiting period before the lender can claim once a default has occurred).
When should you use Personal Guarantee Agreement?
This version has relatively brief provisions and is best suited to smaller transactions where a lender requires an individual to stand behind a company borrower.
This Personal Guarantee Agreement does not limit the maximum amount for which the guarantor may be liable. Open-ended liability is often resisted by individual guarantors, who may be risking personal assets.
Choose the right version
If you need to cap the guarantor’s maximum liability, use:
If the lender requires greater layers of risk protection (including an indemnity), use:
Other statutory note
This document is drafted as a deed, and accordingly care must be taken to ensure that the execution formalities are properly complied with.
It is also necessary for the guarantor to take independent legal advice prior to signing a personal guarantee, to avoid any inference of undue influence. This is particularly true where the guarantor is a spouse of a director.
Personal Guarantee Agreement is part of Corporate. Just £38.50 + VAT provides unlimited downloads from Corporate for 1 year.