A business can do everything right and still face unpaid invoices or loan defaults. That is why many companies ask for a personal guarantee before extending credit. A personal guarantee can give creditors another way to recover money if a business cannot pay.
What is a personal guarantee?
A personal guarantee is a written promise. It says that one person, often the owner of a business, will pay a business debt if the company does not. The business still owes the debt, but the guarantor may also become legally responsible for the debt according to the terms of the guarantee.
In Florida, Section 725.01, Florida Statutes, generally requires a promise to pay another person’s debt to be in writing. A written agreement helps show what both sides agreed to before a dispute begins.
This distinction matters because it explains why many businesses ask for one.
Why do creditors ask for one?
A personal guarantee gives creditors more than one possible source of payment. If the business cannot pay, the creditor may have the right to seek payment from the person who signed the guarantee, subject to the terms and enforceability of the guarantee. A personal guarantee may:
- Increase the chances of recovering unpaid commercial debts
- Encourage business owners to pay on time
- Support claims involving unpaid invoices, loans or promissory notes
- Lower the risk of extending commercial credit
The exact terms of the agreement matter. That is why every guarantee agreement deserves careful review.
What should businesses review?
Not every personal guarantee offers the same protection. Businesses should confirm that the agreement clearly identifies the debt, the parties and the conditions that make the guarantor responsible. They should also verify that the person signing the document has the legal authority to do so.
If the guaranteed obligation involves a promissory note, additional provisions of Florida law may affect how the debt is enforced, including situations in which the original note has been lost or destroyed.
Careful review before extending credit can help avoid problems later.
A personal guarantee is not just another contract term. It can affect how a creditor responds if a business fails to pay. Businesses that understand these agreements before offering credit can make stronger financial decisions and reduce future collection challenges. If questions arise about a specific guarantee, a legal professional can explain how the agreement may apply to a particular situation.