Guarantor release

A personal guarantee is a promise from an individual, separate from the corporate borrower. Selling the shares or assets of the business changes who owns and runs it, but it does not automatically change who the lender can pursue if the debt goes unpaid — the guarantee keeps running against the person who signed it until the lender agrees otherwise.

How a release actually happens

• The debt is paid off in full at closing, which typically extinguishes the guarantee along with it
• The lender agrees to substitute the incoming buyer’s guarantee for the seller’s, after underwriting the buyer as a credit risk
• The lender agrees to release the guarantor while leaving the loan in place, which is the hardest of the three to obtain

Why it is easy to overlook

A seller focused on the purchase price and the closing date can walk away from a deal still personally on the hook for a business they no longer control, if nobody chased down a written release before signing. This comes up in exactly the same way with a landlord’s guarantee on an assigned commercial lease, which is a separate document from a lender guarantee and needs its own release.

What to ask for, and when

A release, or at minimum the lender’s written agreement to provide one, is worth chasing before the letter of intent stage rather than after — a seller with leverage to negotiate the deal has far more leverage to get a release commitment than one who has already signed a definitive agreement and is now asking the lender for a favour.