A personal guarantee is a promise made by a person or an organization (the

guarantor In finance, a surety , surety bond or guaranty involves a promise by one party to assume responsibility for the debt obligation of a borrower if that borrower defaults. Usually, a surety bond or surety is a promise by a surety or guarantor to pay ...

) to accept responsibility for some other party's

debt Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The ...

(the

debtor A debtor or debitor is a legal entity (legal person) that owes a debt to another entity. The entity may be an individual, a firm, a government, a company or other legal person. The counterparty is called a creditor. When the counterpart of this ...

) if the debtor fails to pay it. In the case of a personal guarantee made by an individual on behalf of another, the person who makes the personal guarantee is usually referred to as a '' co-signer'' of a note for a

loan In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that ...

. A guarantor can be any party, including an individual or another organization, with a credit history. A common purpose of a personal guarantee is to allow a loan to be extended to an organization or person with either no credit history or one with a

credit rating A credit rating is an evaluation of the credit risk of a prospective debtor (an individual, a business, company or a government), predicting their ability to pay back the debt, and an implicit forecast of the likelihood of the debtor defaulting. ...

that is too poor to qualify for a

. If a small corporation or limited liability company lacks a credit history, and it wants the entity to be able to borrow funds, the managers and/or stockholders personally guarantee to be liable for the debt in case the organization fails to pay the debt. That is common in the case of corporate credit cards issued to small organizational borrowers in which the person issued the card also accepts personal responsibility for the debt as well as the corporation, so the issuer can go after either party if the debt is not paid. In the case of individuals parents will sometimes provide guarantees for their adult children who lack a credit history. The issuer of the guarantee, in effect, provides joint and several responsibility for the debt so that while the organization, as the debtor, is primarily liable to pay the debt; the creditor can also go after the guarantor as a secondary responsible party if the debtor is unwilling or unable to pay the debt. A personal guarantee means that even if the debtor declares bankruptcy and is discharged from responsibility for the debt, the guarantor is still liable for it.

References

Sureties {{Finance-stub

See also

References