Personal Guarantee (MCA Context)
A personal guarantee in MCA context is the contractual provision requiring business owners to personally back the advance — typically through performance covenants rather than standard loan guarantees — providing funder recourse against owner personal assets in default scenarios.
Why This Matters
MCA personal guarantees are typically structured as performance guarantees rather than payment guarantees, distinguishing them from standard loan guarantees. The owner guarantees the business's continued operation and good-faith performance under the PSA, with personal liability triggered by specific breach events: business closure, fraud, misrepresentation, or contract violations. This structure preserves the MCA-as-purchase characterization while providing funder recourse. In practice, personal guarantees create significant collection leverage — owners with personal assets face exposure even when business assets are insufficient to satisfy obligations.
Frequently Asked Questions
Frequently Asked Questions
Are MCA personal guarantees the same as loan personal guarantees?
Different in legal structure but similar in practical effect. MCA personal guarantees are typically performance guarantees (triggered by specific breach events) rather than payment guarantees (general obligation to repay). However, default events triggering performance guarantee liability often overlap substantially with situations where loan personal guarantees would also be enforced.
Can business owners avoid signing MCA personal guarantees?
Difficult — personal guarantees are standard MCA contract provisions. Larger established businesses with strong credit may negotiate limited or modified personal guarantees. Smaller businesses typically cannot avoid personal guarantee requirements entirely. Some funders offer limited-recourse programs for specific borrower profiles at premium pricing.