Personal Guarantees on Business Loans Explained (2026)

What Is a Personal Guarantee?

A personal guarantee is a legal commitment that makes you personally responsible for a business debt if your business defaults. It bypasses the liability protection of an LLC or corporation, meaning a lender can pursue your personal assets — savings, home, car — to recover what is owed. Most small business lenders require personal guarantees from all owners holding 20% or more.

Unlimited vs. Limited Personal Guarantees

An unlimited personal guarantee holds you responsible for the full outstanding balance plus fees and legal costs — with no cap. A limited personal guarantee caps your liability at a specific dollar amount or percentage of the loan. When negotiating, always try to convert an unlimited guarantee to a limited one, and make sure the limitation is clearly spelled out in writing.

How to Reduce Personal Guarantee Risk

As your business credit history matures, you can often negotiate the removal of a personal guarantee on renewal. Maintaining a strong DSCR (debt service coverage ratio), low credit utilization, and years of on-time payment history gives you leverage. Some lenders waive PGs for established businesses with strong balance sheets and multiple years of profitability.

Frequently asked questions

Can I get a business loan without a personal guarantee?

Some lenders offer unsecured loans without a PG for well-established businesses, but it is rare for startups or businesses under three years old.

Does a personal guarantee affect my personal credit score?

The guarantee itself does not; however, if the business defaults and the lender pursues collection, it will appear on your personal credit report.