What is a personal guarantee on a business contract?

When a business signs a contract, only the business entity is legally obligated to pay. A personal guarantee removes that shield. By signing, the individual owner (or officer) becomes jointly and severally liable with the business: the creditor can pursue the individual's personal bank accounts, wages, and real property if the LLC or corporation does not pay. Personal guarantees are routine in commercial leases, bank loans, and vendor agreements with newer or smaller companies.

For service businesses extending credit to newly formed LLCs or small corporations, requesting a personal guarantee is standard practice. Most legitimate small-business owners accept them. A client who aggressively resists a personal guarantee on a new, large engagement is often signaling exactly the credit risk you are trying to hedge against.

Personal guarantees survive business closure. If the LLC dissolves, the guarantor remains personally obligated. This is one of the most important tools for collecting an invoice when a client's business has closed — if you have a signed guarantee, the debt follows the individual and the statute of limitations runs from the original due date, not from the business closure.

A limited personal guarantee caps the guarantor's exposure (e.g., 'Guarantor's liability shall not exceed $25,000'). An unlimited personal guarantee covers the full debt plus interest, fees, and attorney costs in some agreements. Always specify which type you are using.