Finance term
Personal Guarantee
Also known as: PG, personal guaranty, unlimited personal guarantee
Definition
A personal guarantee (PG) is a contractual promise by a business owner to personally repay a business loan if the business defaults — required from owners with 20%+ equity on virtually all SBA, bank, and alternative business loans. Failure to pay allows the lender to pursue personal bank accounts, real property, and other personal assets.
Detailed explanation
Personal guarantees are standard for almost all small business lending. The SBA requires PGs from any owner with 20% or more equity under SBA SOP 50 10 (https://www.sba.gov/document/sop-50-10-lender-development-company-loan-programs) — the same ownership threshold that triggers FinCEN's beneficial-ownership verification rule (https://www.fincen.gov/resources/statutes-regulations/federal-register-notices/customer-due-diligence-requirements). Most alternative lenders mirror the SBA's 20% threshold for consistency.
The PG converts limited-recourse business debt into full-recourse debt against the owner's personal balance sheet. A full, unconditional PG (the most common form) puts all personal assets at risk: bank accounts, investments, vehicles, real estate, future wages. Limited PGs cap personal exposure to a specified dollar amount or specific asset.
State homestead exemptions protect primary residences from PG enforcement in some states — California, Florida, and Texas have meaningful homestead protections, but limits and conditions vary. In most states, personal real estate is reachable through a judgment lien stemming from a defaulted PG.
'No-PG' carve-outs exist for very strong businesses: corporate charge cards (Brex, Ramp) use business cash balance and revenue rather than owner credit, and some SBA Express products for established businesses waive PG. For the vast majority of small business borrowers, a PG is non-negotiable.
◈ Worked example
- SBA 7(a) $500K loan — both partners with 50% equity each sign unconditional PGs; if the business fails, lender can pursue their personal assets
- MCA $75K — sole owner signs PG; default triggers personal judgment in the lender's state, visible on personal credit for 7-10 years
- Equipment financing — PG plus UCC on the equipment; lender repossesses equipment first, pursues PG for deficiency
Common questions
The most-asked questions about Personal Guarantee — answered straightforwardly.
What is a personal guarantee on a business loan? +
A personal guarantee (PG) on a business loan is a contractual promise by the business owner to repay the loan personally if the business cannot. It converts limited-recourse business debt into full-recourse debt against the owner's personal assets — bank accounts, real estate, investments, and future wages. Under SBA SOP 50 10 (sba.gov), any owner with 20% or more equity must sign a PG on all SBA loans. Most alternative lenders mirror this 20% threshold. A full, unconditional PG (the most common form) puts all personal assets at risk with no dollar cap. Source: SBA SOP 50 10 (sba.gov/document/sop-50-10-lender-development-company-loan-programs).
Can I get a business loan without a personal guarantee? +
Limited options exist. Corporate charge cards (Brex, Ramp, Mercury IO) issue based on business cash balance and revenue, not owner credit, and don't require PGs. Some equipment financing structures are collateral-only on strong files. SBA Express lines occasionally waive PG for established borrowers. Most traditional small business lending — SBA 7(a), bank term loans, lines of credit — requires PG from all 20%+ owners.
What happens to my personal credit if I sign a PG and default? +
The PG itself doesn't directly impact personal credit unless the business defaults. If default occurs and the lender pursues the PG: judgment liens hit your personal credit report; collection actions and judgments are visible for 7 years; a personal bankruptcy to discharge the PG obligation stays on personal credit 7-10 years. The credit impact is significant and long-lasting.
Do all partners have to sign a personal guarantee? +
Any owner with 20% or more equity interest must sign a PG under SBA guidelines — a threshold most alternative lenders also apply. A business with four equal 25% partners would require all four PGs. A 15% minority partner is typically not required to sign, though some lenders ask them to anyway.
Further reading
This glossary entry is educational content. ClearValue Lending is a business & personal financing platform — not a lender, broker, or financial advisor. Specific product terms vary by lender; verify with the lender or issuer before applying. See privacy policy.