What is a Personal Guarantee Review?
A personal guarantee is a legal promise between parties, in which an individual (the guarantor) is personally liable for debts or financial obligations of a company. This means that should the company default, such as on their loan, the guarantor will have to settle it with their own money or assets.
A personal guarantee has several benefits, such as that it enables a business to make use of higher loan amounts because an individual can step up to take responsibility for repayment.
Since a personal guarantee is legally binding, it’s essential to review its terms regularly to ensure that they’re fair and reasonable.
Read the rest of this article for key terms included in a personal guarantee, how to review it, and why you should consult with a lawyer for a comprehensive personal guarantee review.
What are Key Terms in a Personal Guarantee?
Some of the most common terms in a personal guarantee include the following:
- Liability. This can be joint or several. If more than one person is guaranteeing a loan, the lender can expect any one of them to pay the entire debt.
- Limited or unlimited. An unlimited personal guarantee means you’re responsible for the total balance, which includes all fees and interest. By comparison, a limited guarantee caps liability at a certain amount.
- Continuing guarantee. This term means that the agreement applies to the current debt but also future financial obligations.
- Charging clause. This means the lender can place a lien against the guarantor’s personal assets for collateral.
- Waiver of defenses. Should the company default, a waiver of defenses might come into play. This allows the lender to go after the guarantor's personal assets.
What are Tips for Reviewing a Personal Guarantee?
When reviewing your personal guarantee, you want to check for specific provisions. Here are some things to bear in mind.
Determine Maximum Liability
Check that the personal guarantee explains if there is a fixed maximum or unlimited limit, as this determines your level of responsibility.
In joint and several liability, the agreement should specify if you are liable for a fraction of the amount or all of it.
Consider Triggering Events
You want to be specific about what a default actually means and if there are any cure periods in which the company can remedy the issue before the lender is allowed to enforce the guarantee and require the guarantor to pay off the debt.
Ask About Duration and Expiration
The personal guarantee agreement should state when the guarantee comes to an end and how it can be terminated to protect your interests.
Scrutinize Wording for Assumptions
You want to check the wording of the document to ensure you’re not at risk of certain assumptions. For example, the agreement might state that the guarantee remains even after the debt has been settled.
Similarly, if the guarantor leaves or sells the business, they might assume that the guarantee rules no longer apply. But, the guarantor might still be personally liable, even if they are no longer connected to the company.
Keep it Compliant
Check that the personal agreement is legally compliant to prevent disputes or penalties. If you neglect to consider local laws, your personal guarantee could be unenforceable.
For example, in some places, the guarantor must appear before a lawyer to acknowledge that they understand the guarantee’s terms and consequences. The lawyer will provide a certificate of acknowledgment.
Do You Need a Lawyer for Personal Guarantee Review?
Although you don’t legally need a lawyer to review your personal guarantee, it’s advisable to hire one. This is especially important if your personal guarantee involves a business loan or supplier contract. You want to minimize your financial and legal exposure by working with a qualified lawyer.
A lawyer will help you through the review process by:
- Explaining all your liabilities so that you don’t accept hidden risks.
- Negotiating with the other party for favorable terms, such as limiting the guarantee to a fixed amount.
- Rewriting the document so that it doesn’t include any vague or ambiguous wording that can be open to misinterpretation.
- Clarifying if your personal assets, such as family belongings, could be affected by the guarantee terms.
- Checking if the guarantee will continue after you sell your ownership interest or leave the company.
- Reviewing security and collateral provisions, such as liens on personal property.
- Comparing the terms in the guarantee with industry norms. This will help you determine if the lender’s demands are too aggressive.
- Aligning the document with all applicable laws and rules to make it enforceable in your jurisdiction.
Where to Find a Lawyer for a Personal Guarantee Review
It can be stressful to find the best lawyer according to your specific legal requirements. You can find a lawyer easily from the comfort of your home by using online legal platforms, like ContractsCounsel.
ContractsCounsel is one of the largest online legal marketplaces that gives you access to a curated network of vetted lawyers. All lawyers on the platform have the expertise required for drafting and reviewing contracts.
You can easily request that a qualified lawyer on the ContractsCounsel platform review your personal guarantee for clarity. All you have to do is follow these easy steps.
1. Go to the ContractsCounsel marketplace. You’ll post your project for free.
2. Wait to receive lawyer bids. Without having to search for lawyers, you’ll receive multiple bids from lawyers directly on the platform.
3. 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. This helps you choose the most suitable lawyer for your review.
4. Connect with a lawyer who matches your legal requirements and hire them for the job. You can also hire a qualified lawyer to draft your personal guarantee from scratch.
