What is a personal guarantee, and can I get out of one?

A personal guarantee is what lets a lender or landlord reach past the corporation and go after an individual’s own assets if the business cannot pay. Owners give them routinely to get financing, a lease or supplier credit in the early years of a business, and they are easy to forget about once the business is running — until it comes time to sell.

Why selling the business does not end it automatically

A guarantee is a separate contract between the guarantor and the lender or landlord, not a term of the business’s own contracts, so a sale of the business does not automatically terminate it. The guarantor remains on the hook to that specific creditor until the creditor agrees otherwise, regardless of who now owns or runs the business day to day.

What actually gets a guarantee released

• A written release from the lender or landlord, usually negotiated as a closing condition
• A replacement guarantee from the buyer, or the buyer’s new corporate entity, that the creditor accepts as adequate
• Full repayment or refinancing of the underlying debt at or before closing
• In some lease guarantees, expiry of a term or renewal point specified in the original guarantee itself

Where this shows up most in a sale

Commercial leases and small-business loans are the two most common sources of a lingering personal guarantee, and both landlords and lenders have their own process for reviewing a request to release one — often tied to the buyer’s creditworthiness. Some federally supported small-business loan programs also place their own limits on how a personal guarantee can be structured in the first place, which is worth checking if the original loan was financed that way.

Why this needs to be identified early, not at closing

A seller who assumes the guarantee simply disappears when the business sells can be unpleasantly surprised months after closing, when a landlord or lender still treats them as liable. Identifying every personal guarantee tied to the business, and getting a release or replacement built into the closing conditions, is something to raise at the start of a deal, not something to discover afterward.