Why it matters
Personal guarantees turn limited-liability companies into unlimited-liability ones for founders. Banks ask for them on commercial loans below $500K, on commercial leases for office space, on equipment financing, on AR factoring lines, and on credit cards above $50K limits. Many founders sign without understanding that the guarantee survives bankruptcy — even if the company is liquidated and discharged, the founder's personal obligation continues. The 2023 startup downturn produced thousands of founders with $200K–$2M of personal debt from guarantees they signed three years earlier on equipment leases and office spaces, while their companies were dissolved and their VCs walked away clean. Personal guarantees are not 'just paperwork.' They are the most damaging single document a founder can sign in their entire career.
How to negotiate
Refuse personal guarantees on any company obligation over $50K, full stop. If a bank or landlord requires one, find a different bank or landlord — both exist. For unavoidable PGs (some commercial leases, some equipment financing for hardware companies), negotiate a 'burnoff' provision: the PG terminates after 12–24 months of on-time payments, or after the company reaches a revenue threshold. Negotiate carve-outs for primary residence and retirement accounts where state law allows. If a VC asks you to sign a personal guarantee on a venture debt facility (rare but happens), refuse and bring it to your board.
Example language
How this clause typically appears in a debt agreement or note. Read it carefully — the language that triggers default is often buried in routine paragraphs.
As an inducement to Lender to extend the Loan to Borrower, Guarantor (the 'Founder') hereby unconditionally and irrevocably guarantees the full and punctual payment and performance of all obligations of Borrower under this Agreement. This Guaranty shall continue in full force and effect notwithstanding any bankruptcy, insolvency, or dissolution of Borrower.
TURNSHEET provides intelligence, not legal advice. This page describes typical market behaviour and common negotiation tactics; your specific facility may have nuances that change the analysis. Always review your debt documents — including covenants, intercreditor agreements, and personal guarantees — with qualified legal counsel before signing.