A personal guarantee is a promise made by a person or an organization (the guarantor) to accept responsibility for some other party's

debt Debt is an obligation that requires one party, the debtor, to pay money Loan, borrowed or otherwise withheld from another party, the creditor. Debt may be owed by a sovereign state or country, local government, company, or an individual. Co ...

(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 tender of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay interest for the use of the money. The document evidencing the deb ...

. 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 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