The Hidden Side of Personal Guarantees

You formed an LLC to keep your house out of the business. Then you signed one extra page.

That page is a personal guarantee. And it quietly undoes the thing you formed the LLC to do.

What you actually signed

A personal guarantee is a simple promise. If the company doesn't pay, you will.

Landlords ask for it. Banks ask for it. Equipment lenders and some suppliers ask for it. On an SBA loan, anyone who owns 20% or more of the business generally has to sign one.

It makes sense from their side. A new LLC has no track record. You do.

But once you sign, the lender isn't limited to what the company owns. They can come after what you own. Your savings. Your car. Sometimes your house.

The parts nobody reads

Most guarantees aren't one-sentence promises. They're a few dense pages, and the hidden side lives in the details.

It's often unlimited. Not just the loan. Interest, late fees, and the other side's attorney fees too.

They may not have to chase the company first. Many guarantees let the lender come straight to you. No need to collect from the LLC before knocking on your door.

If two owners sign, each can owe all of it. That's what "joint and several" means. If your partner can't pay their half, you may be paying the whole thing.

It doesn't end when you leave. Sell your share, step away, even close the company. The guarantee usually stays in place unless the lender signs a release.

It can outlive you. A guarantee is a debt like any other. If you die before it's paid off, the lender can make a claim against your estate.

Your LLC can't fix this

I wrote about what an LLC does and doesn't shield. A guarantee is the clearest gap.

The LLC protects you from the company's debts. A guarantee makes the debt yours on purpose. It doesn't matter how carefully you signed everything else as the company.

That's not a reason to never sign one. Sometimes it's the price of getting the lease or the loan. It's a reason to sign with your eyes open.

What you can ask for

Guarantees are more negotiable than most people think. Not always. But often enough that it's worth asking.

Ask for a cap. A fixed dollar amount, or a few months of rent, instead of everything.

Ask for a burn-off. After a set stretch of on-time payments, the guarantee shrinks or goes away.

On a lease, ask about a "good guy" guarantee. You're on the hook only until you give notice, pay through that date, and hand back the keys.

If you have partners, ask that each of you guarantee only your share. And when you sell or leave, get a written release. Don't assume it happened.

The simple version

Your LLC protects you right up until you sign a page that says it doesn't.

Read the guarantee before you sign the lease. Know the real number you're risking. Then decide.

If you've got a lease, loan, or vendor agreement in front of you, here's how I help with business contracts. And if you'd like to talk it through, you can schedule a consult.

This is general education, not legal advice for your situation. I'm licensed in Utah, Arizona, and Texas.