What Is a Guarantor in Business Lending? | Business Lending Glossary
Learn what a guarantor is, how guarantor requirements work in business lending, and the personal liability implications of signing a guarantee.
Definition
A person or entity that agrees to repay a loan or fulfill a financial obligation if the primary borrower fails to do so.
Explanation
A guarantor provides a lender with an additional layer of repayment security by pledging their own creditworthiness and assets as a backstop. In business lending, owners with 20% or more equity are typically required to sign as personal guarantors. A guarantor's credit history, net worth, and existing obligations all factor into the lender's overall credit assessment.
Example
A husband and wife each own 50% of a restaurant and are both required to sign personal guarantees on a $300,000 SBA loan, making them each jointly and severally liable for the full balance.
Why It Matters
Signing as a guarantor means your personal assets — including your home and savings — may be at risk if the business cannot repay the loan, so the decision should never be taken lightly.
Frequently asked questions
Can I negotiate to remove a guarantee after the loan is established?
Some lenders will consider releasing a guarantee after the loan has been substantially paid down and the business demonstrates strong standalone financials, but this is not guaranteed.
