A personal guarantee (PG) is an individual’s legal commitment to satisfy a company’s debt if the business fails to pay—putting personal assets at risk beyond corporate liability shields.

How it works

Lenders ask founders to guarantee term loans, lines of credit, or lease obligations when the company lacks credit history or collateral. Guarantees may be joint and several among co-founders, limited to a dollar cap, or burn down as financial covenants improve. Venture debt sometimes includes limited PGs early, releasing them after revenue milestones.

VC equity rounds typically do not require personal guarantees on the investment itself—that is what preferred equity and downside protection address for investors. Mixing PG-backed bank debt with venture raises affects founder risk profile in downturns.

Spousal consent may be required in community property states when personal assets secure a guarantee. Founders should disclose PG exposure to co-founders and boards when company debt is personally backed.

Why it matters

• Founders: Negotiate caps, sunset clauses, and spousal considerations with counsel. Understand bankruptcy interaction with corporate vs personal liability.
• Investors: Heavy PG debt can distort founder incentives in distress—founders may prioritize saving personal assets over optimal company outcomes.

Negotiate release triggers tied to revenue or EBITDA when lenders allow milestone-based PG burn-down.

Common mistake

Signing unlimited PGs for modest debt without milestone-based release. Ask what it takes to remove the guarantee as the company matures.

Founders raising venture equity should not assume PGs are required on every venture debt term sheet.

Related ideas

See venture debt, corporate veil, founder-friendly debt terms, and covenants.