Lenders to closely held businesses routinely require owners to guarantee the debt personally. The obligation is negotiable more often than owners assume.
Limit the amount. A capped guaranty for a stated dollar figure, or a percentage of the outstanding balance, rather than unlimited liability for everything the borrower ever owes.
Limit the obligations covered. This facility only, rather than all present and future indebtedness. The all-obligations language captures debt the guarantor has never seen.
Several rather than joint. Where there are multiple owners, each guaranteeing their ownership percentage rather than each being liable for the whole.
Burn-down provisions. The guaranty reduces or terminates on the borrower achieving stated financial covenants for a defined period, which converts it into a temporary credit enhancement rather than a permanent one.
Springing guaranties. In real estate lending, liability limited to defined bad acts — fraud, misapplication of funds, waste, unpermitted transfers — rather than payment of the loan.
Exhaustion. Requiring the lender to pursue the collateral first, which most lenders resist and which is occasionally obtainable.
Spousal signatures. Understand what is being pledged, particularly where property is held jointly or by the entireties.