Business contracts often include more than just terms between companies. Many lenders, landlords, and vendors ask for something extra: a personal guarantee. If you’re a Utah business owner, signing one could put your personal assets—like your home or savings—on the line.
Before you sign, understand what you’re committing to and how to limit your exposure.
What Is a Personal Guarantee?
A personal guarantee is a legal promise that you (not just your business) will be responsible for a debt or obligation if your company fails to pay. It’s a way for the other party to minimize risk, especially when working with new, small, or high-liability businesses.
Common situations where you might see a personal guarantee include:
- Commercial leases
- Business loans or lines of credit
- Vendor or supplier contracts
- Equipment financing
Why They’re Risky for Small Business Owners
Many Utah business owners form LLCs or corporations to protect their personal assets. But a personal guarantee cuts through that protection. If your business defaults, the other party can sue you personally—and go after your wages, bank accounts, or property.
This is especially dangerous in industries with high overhead or unpredictable cash flow. One bad year could wipe you out personally.
Common Terms You Should Watch Out For
Not all guarantees are the same. Some are unlimited, while others can be negotiated. Watch out for:
- Joint and several liability – You’re 100% responsible even if there are co-guarantors
- Continuing guarantees – Stays in effect even after the contract ends
- Waiver of notice or defenses – Gives the creditor more leverage if you’re sued
- Acceleration clauses – Entire balance becomes due if the business defaults once
Never sign a guarantee without reading it in full—and having legal counsel explain the implications.
How to Negotiate a Better Deal
If a personal guarantee is non-negotiable, you may still be able to:
- Limit the dollar amount or duration
- Exclude specific assets (like your home)
- Cap your liability to a percentage of the debt
- Remove the guarantee after a period of on-time payments
- Replace it with collateral or a larger security deposit
Most creditors expect pushback—don’t be afraid to ask.
You can also refer to our post on What Should Be in Your Utah Business Contracts for general contract drafting tips.
When You Should Walk Away
If a vendor, landlord, or lender won’t budge and the risk is too high, it may be worth walking away. There’s a difference between growing your business and gambling your future.
Need Help Reviewing a Personal Guarantee?
Duckworth Legal Group helps Utah business owners understand, negotiate, and challenge personal guarantees. If you’re being asked to sign one, contact us at 801-882-7444 or by email before you commit.