Personal Guarantee
A personal guarantee is a contractual commitment by a business owner to be personally responsible for repayment of a business obligation (such as an MCA advance) if the business fails to perform — extending creditor recovery rights beyond business assets to personal assets.
Why This Matters
Personal guarantees are standard in MCA agreements. Without PGs, recovery against a defaulted business with limited assets becomes nearly impossible. PGs let funders pursue owner personal assets (bank accounts, real estate, garnishment of wages from other employment) in default scenarios. Combined with COJ (Confession of Judgment) clauses where enforceable, PGs give funders robust collection mechanisms. From the merchant's perspective, PGs significantly increase the personal risk of taking MCA — a key consideration when evaluating funding options.
Frequently Asked Questions
Frequently Asked Questions
Are personal guarantees enforceable on MCA?
Yes in all US jurisdictions. PGs are standard contract law and enforceable in court. The defenses available (duress, fraud, unconscionability) rarely succeed in commercial finance contexts. Owners signing MCA agreements should understand PG creates personal liability beyond the business entity's assets.
Can a merchant negotiate out of a personal guarantee?
Rarely on MCA. PGs are contractually mandatory at all major funders. Larger commercial finance products (asset-based lines, equipment finance, SBA loans) sometimes accommodate non-recourse structures. For MCA specifically, expect to sign a PG to access funding.