Personal Guarantee

August 3rd, 2009

Personal guarantee is usually needed when lending to a high risk prospect. Credit companies like having personal guarantee on any credit line or credit card they give out to high risk customers. Customers prefer business credit card with no personal guarantee. Building corporate credit without personal guarantee takes time. Usually only established businesses with a lot of assets can have business credit with no personal guarantee.

The credit department sometimes require a high credit risk prospect to pay cash in advance in order to be approved for credit line. This usually does not go well with prospects and often results in lost sales and angry prospects.

The creditors then offer a possible solution which is for the high credit risk prospect to have someone with personal assets guarantee, called personal guarantee, payment of debts. Having personal guarantee makes debt collection easier since when the debtor fails to pay, the collection agency or creditor will go after the person who gave the personal guarantee.

Personal guarantee, credit and debt collection

If you don’t know if you have signed any personal guarantee or personal guarantees, you should find out. Even if you have been good with paying bills, the loans with your personal guarantee may not be and you will find yourself in trouble with Collection Agencies, debt collectors and creditors. Your credit could be destroyed along with the credit of the debtor in default, especially if the debtor has filed bankruptcy.

Limit of personal guarantee

The limit of personal guarantee depends on the loan agreement and the state law. Some states require that a personal guarantee include limitations on the amount of personal guarantee and sometimes the date after which the personal guarantee terminates.

Joint personal guarantees

Sometimes, creditors will ask for a joint personal guarantee from the guarantor and his or her spouse. Having a joint guarantee in place will help the creditor and debt collector by pass some state law such as the community property laws. At the creditor’s office or collection office, the personal guarantee document of personal guarantee form is locked up in the safest areas.