What Does a Personal Guarantee Mean for my NZ Business?

Business is inherently risky, so people look for ways to protect their interests when entering into new contracts. A common business practice is to ask for a personal guarantee if money is exchanging hands. This could apply in a loan contract, or for the sale of a business. If you make a personal guarantee for someone else (the debtor), then you (the guarantor) are promising the lender/seller (the guaranteed party) that you can personally pay back what the debtor owes, if they cannot. It is a big commitment, and you should think carefully about all of your possible options before making a personal guarantee. This article will explain what a personal guarantee is, and things you should consider when signing one.

What Is a Personal Guarantee?

When you make a personal guarantee, as the guarantor, you promise that you can personally cover the debt that a borrower or buyer takes on. You take on the obligation of fulfilling their contract, providing a guarantee that they can hold up their end of the bargain. If they are unable to, then it is your responsibility to pay back what they owe and fulfil the contract. Continue reading