Managing Risk: Personal Guaranties in Commercial Transactions

Terese A. West
Summer 2011 Firm Newsletter

Commercial lenders routinely require one or more owners or managers of a business to personally guaranty payment of business debt.  A personal guaranty is not a substitute for borrower creditworthiness; the business remains the primary source of repayment.  The guaranty is a contract separate from the underlying obligation that requires the guarantor to perform only in the event the business defaults.  A personal guaranty provides the lender with additional security for the loan.  It also ensures that management has as much of a financial stake in the business as the lender.

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