What is Personal Guarantee Drafting?
A personal guarantee is a legal document in which a business owner promises to pay back company debt with their own personal assets should the business fail to pay.
If the company defaults on their debt, the business owner (known as a guarantor) will have to step in and fund it.
Since a personal guarantee has serious consequences, it needs to be drafted accurately and in specific language to prevent ambiguity.
Read the rest of this article for key terms you should include in your personal guarantee, how to draft it, and why you should consider hiring an experienced lawyer for assistance with the drafting process.
What Key Terms Should You Include in a Personal Guarantee?
A personal guarantee should include the following information:
- Guarantor. Specify who is giving the guarantee.
- Principal borrower. This is the person or company whose financial duties are being guaranteed.
- Obligations. Outline exactly what the guarantor is promising, such as paying the principal debt, interest, and/or any other amounts.
- Limited or unlimited. This explains if the guarantee is limited, meaning that the guarantor is responsible for paying the full balance; or limited, in which they’re only liable for a specific amount.
- Liability. There’s also joint or several liability. If the agreement involves multiple people who are guaranteeing the loan, the lender can expect any of them to pay off the entire balance owed.
- Continuing guarantee. In some cases, the agreement doesn’t solely cover the current debt but also future obligations.
- Waiver of defenses. This can occur if the company defaults on the loan. It gives the lender permission to seek the guarantor’s personal assets to pay the money.
What are Tips for Drafting a Personal Guarantee?
When writing key terms in your personal guarantee, you should bear some considerations in mind so that the contract is clear and specific.
Detail Triggering Events
The personal guarantee must specify what constitutes a default and if there are periods in which the company can fix the issue before lenders require the guarantor to pay off the debt.
Specify the Type of Guarantee
Make sure your personal guarantee reflects the terms of your arrangement. If it’s an unlimited guarantee, the guarantor is completely responsible for all of the debt. Understand that this includes fees, interest, and legal costs.
Consider the Risks
It’s important to think about the risks involved in a personal guarantee so that its terms reflect this. These include the guarantor being forced to use their personal finances to fund the debt and strained business relationships between partners in the case of joint and several guarantees.
By understanding all possible risks, you can include provisions in the document to protect you, such as setting a cap on maximum amounts.
Explain Covered Obligations
You should clarify if the guarantee applies to a specific loan or will also cover future financial obligations. This is something not to neglect as mistakes could result in disputes or financial losses.
When writing the financial terms of your personal guarantee, you should include if ancillary costs are included, such as legal fees or lender collection costs, so that there’s clarity over liability.
Seek Legal Advice
Once you’ve drafted your personal guarantee, it’s worth getting a legal review from a qualified lawyer so that you don’t sign a document that puts you at unnecessary risk. You can also hire a lawyer to draft the entire personal guarantee, giving you peace of mind that you’re not neglecting any important information.
How Does a Lawyer Help You with Personal Guarantee Drafting?
When writing a personal guarantee, a lawyer can help you during the entire process. They’ll explain all terms and consider what needs to be included in the legal document.
A lawyer will assist you with drafting a personal guarantee by:
- Explaining all your obligations. They’ll clarify what you’re agreeing to guarantee so that there’s no confusion.
- Limiting your financial exposure. They’ll draft the guarantee so that it has clear limits.
- Defining when the guarantee will be applied. This includes specifying when the creditor is allowed to demand payment.
- Protecting your interests. This includes drafting notices, amendments, and enforcement procedures.
- Identifying any hidden risks. A lawyer will avoid writing any unbalanced or one-sided clauses that put you at risk of greater liability.
- Complying with all relevant laws. This reduces the risk that the personal guarantee isn’t enforceable.
- Negotiating for favorable terms. A lawyer can help you to negotiate terms of the document with the other party, such as a lender or business partner.
Where to Find a Lawyer for a Personal Guarantee Drafting
Looking for the right lawyer to draft your personal guarantee doesn’t have to be stressful or take a lot of time. If you use an online legal platform like ContractsCounsel, you can quickly locate a reputable lawyer to assist you with drafting the contract.
ContractsCounsel is one of the largest online legal marketplaces that gives you access to a curated network of vetted lawyers. All the lawyers on the platform have the skills and expertise required for drafting contracts. They can also assist you with reviewing your agreement before you sign it so you protect your interests.
You can easily request that a qualified lawyer on the ContractsCounsel platform drafts your personal guarantee. All you have to do is follow these steps.
- Go to the ContractsCounsel marketplace. You’ll post your project for free.
- Wait to receive lawyer bids. Without having to search for lawyers, you’ll receive multiple bids from lawyers on the platform.
- Review the lawyers' profiles. The platform provides extensive lawyer data, such as location, client ratings, years of experience, field of expertise, and previous projects completed on the platform.
- Connect with a lawyer and hire them to draft your personal guarantee for a flat fee.
