Limited guarantee

Buyers may meet this term if a lender asks the owner to stand behind a business loan personally. BDC says that without tangible collateral, a borrower will generally be required to sign a personal guarantee for a working capital loan. A limit is one way to define how far that promise reaches. See personal guarantee for the unlimited form.

A cap in a government program

The program guidelines say a lender can take unsecured personal guarantees up to the original amount of the loan disbursed, and that, subject to the conditions in item 24.2, a loan may be ineligible if the lender has taken a personal guarantee secured by collateral assets. They also say the guarantee document may provide for interest on any judgment, taxed costs, legal fees, disbursements and other costs of proceedings against the guarantor, and they limit realization on personal guarantees to the amount signed plus those costs. A cap therefore needs a careful read: ask what sits inside it and what sits on top.

What to ask a lender

• Whether the guarantee is capped, and how the cap is written.
• Whether interest and enforcement costs fall inside or outside the cap.
• Whether the cap is reduced as the loan is repaid.
• Who else signs, and whether the guarantee is secured by anything.

The question of negotiating a cap on a personal guarantee is covered in its own answer.