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| *Ostroff, Fair and Company>>>Credit |
What would be the purpose of a personal guarantee? |
What would be the purpose of a personal guarantee? in lay man's term, once somebody guarantees the obligation of another, the lender can run after this person, commonly called a guarantor.. However, this should not be mistaken with "solidarily liable" which means the debtor can choose who to run after to pay the debt, the actual borrower or the person who co-signed as solidarily liable. In a guarantee, the lender must run after the debtor first ,and only if the the latter cannot pay and/or does not have any asset to pay the loan can the creditor run after the guarantor. A personal guarantee is an agreement in which a principal of a corporation assumes personal liability for the obligations of the corporation; for payment of debt or performance of some obligation if the person/company primarily liable fails to perform. This can be a good safeguard and protection. if it is for another person it means that you are the guarantor for them - meaning if they dont pay the bill then you are responsible for it. as a director of a new start-up business I was asked to stand as personal guarantor for all the business borrowings. (a limited company is an entity in its own right, so it borrowed the money, not me personally - to make someone responsible the banks made sure I covered their risk) I used to laughingly say "another one - ok, you can only bankrupt me the once" and I was right, when the business went under I was guarantee for over 100,000 and I was only bankrupt the once. although the bank manager who forgot to get me to sign the forms for the 22,500 that also could have been on there probably regrets it almost as much as I did. |
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