In a business context, a guarantor is usually a business owner or principal who personally guarantees their company's obligations. By signing a personal guarantee agreement, the owner agrees that if the business can't or doesn't pay, their personal assets can be used to satisfy the debt. This effectively pierces the normal protection of the corporate form. Many service businesses require personal guarantees from new clients with limited credit history. It turns an unsecured business debt into something secured by a personal obligation.

A guaranty agreement (the document creating the obligation) should be specific. It should name the guarantor, describe the debt or class of debts covered, specify whether it's a limited guaranty (capped at a specific amount) or unlimited, and state whether it's a continuing guaranty (covering future debts) or a single-transaction guaranty. Vague guaranty language gives the guarantor room to argue their obligation was narrower than intended.

If a business customer defaults, you can pursue both the business entity and any personal guarantors simultaneously. Notify the guarantor in writing of the default and the amount owed under the guarantee. The guarantor's payment obligation typically kicks in the moment the principal debtor defaults. You don't need to exhaust collection against the business first unless the guaranty specifically requires it.