Personal Guarantee
A pledge by an individual to be personally liable for a business's lease or loan obligations if the entity defaults.
Definition
A personal guarantee (PG) makes an individual—typically a business owner or borrower principal—personally responsible if the legal entity cannot perform. In leasing, the landlord can pursue the guarantor's personal assets for unpaid rent or damages. In commercial lending, the lender can pursue the same assets if the borrower defaults on the loan. Personal guarantees are common in small bay industrial because many tenants and buyers operate through thinly capitalized LLCs. Guarantees may be full or limited (time-limited burn-offs, dollar caps, or carve-outs). Lenders and landlords evaluate the guarantor's credit, liquidity, and net worth when sizing risk.
Example
An LLC signs a 3-year lease for a 3,000 SF unit at $15/SF ($45,000/year). The landlord requires the two members to personally guarantee. If the business fails in year two with $30,000 left on the lease, both individuals are personally liable for that amount. The same structure often appears on a $1,200,000 acquisition loan: if the property LLC defaults, the lender can pursue the guarantors beyond the collateral.
See Also
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