# Personal Guarantee on Equipment Loans Canonical URL: https://fundmyequipment.com/learn/personal-guarantee-equipment-loan/ Last modified: 2026-05-29T19:39:17+00:00 Type: efin_guide ## Summary Personal Guarantee on Equipment Loans. Comprehensive guide covering the topic in depth, with worked examples, current data, and cross-references. ## Content A personal guarantee makes you individually liable for an equipment loan even though the business is the borrower. Almost every equipment lender requires it from owners with 20%+ stake. Understanding what you sign matters before, during, and after the loan. What a personal guarantee does When you sign a personal guarantee: The lender can pursue your personal assets if the business defaults Your personal credit reflects the business's payment history The guarantee survives business dissolution, bankruptcy, or sale (usually) The lender does not have to exhaust business assets before pursuing you In other words: you are co-signing the loan even if the loan documents call you a "guarantor" instead of "borrower." Types of personal guarantees Joint and several Multiple guarantors are each fully liable for the entire amount. The lender can collect 100% from any one of you, without needing to pursue the others first. Standard for multi-owner businesses. Several only Each guarantor is liable for a defined portion. Less common in equipment finance. Limited guarantee Guarantee is capped at a defined dollar amount or carved out from specific assets (homestead exemption, retirement accounts). Negotiable on larger deals. Continuing guarantee Covers all current and future obligations of the business to that lender. Once signed, it covers loans you sign three years from now too. Common; pay attention to language. What assets are at risk If you default and the lender pursues the guarantee: Personal bank accounts (subject to state exemptions) Investment accounts (subject to retirement-account protections) Real estate (with limits in homestead-protection states) Vehicles (your personal cars, boats, etc.) Wages (garnishment subject to state limits) Income tax refunds State exemptions vary. Texas, Florida, and a few others have strong homestead protections. Most states have at least some exemption for retirement accounts and a portion of wages. Why lenders require it Equipment lenders require personal guarantees because: Business assets often cannot cover the loan in default Personal liability aligns owner incentives with loan repayment Personal credit history is more predictive than business credit alone for smaller businesses Recovery probabilities increase substantially with personal recourse When you might avoid one Personal guarantees are sometimes waivable when: Loan amount is small relative to business cash flow (DSCR over 2.0) Business has very strong credit history (5+ years, multiple tradelines) Significant collateral beyond the equipment Loan is well below the equipment value (LTV under 50%) Business is large enough to support institutional underwriting For typical small-to-mid-size equipment finance, personal guarantees are nearly universal. Negotiating the guarantee What can sometimes be negotiated: Limit to specific assets. Carve out homestead, retirement, specific accounts. Cap amount. Liability limited to a dollar figure, not unlimited. Sunset provision. Guarantee expires after X years of on-time payments. Release on equity threshold. Guarantee released when borrower equity in equipment exceeds a defined ratio. Several only instead of joint and several. For multi-owner businesses. Lenders rarely give up the guarantee entirely but often accept modifications. What happens after default If the business defaults and the lender activates the personal guarantee: Demand letter sent to guarantor(s) Settlement negotiations begin If no settlement, lender files lawsuit Default judgment or contested trial If lender wins, judgment entered against guarantor personally Collection actions: bank levies, wage garnishment, real estate liens Timeline: 3 to 18 months from demand letter to collection action. Personal guarantee + bankruptcy Personal guarantees survive most business bankruptcies. If the business files Chapter 7 or Chapter 11, the personal guarantee remains in effect against the individual guarantors. Personal bankruptcy (Chapter 7 or 13) can discharge personal-guarantee obligations, though specific requirements apply. This is not a planning strategy; it is a fallback for genuine financial distress. Multi-owner considerations If multiple owners sign personal guarantees jointly and severally, one owner's personal financial collapse does not protect the others. The lender can pursue any combination of guarantors. Internal indemnity agreements between owners can rebalance the burden but do not affect the lender's rights. Action steps before signing Read the guarantee section carefully (often a separate document from the main loan agreement) Identify whether it is joint-and-several or several only Identify whether it is continuing (covers future obligations) Identify any caps or limitations Identify what assets are pledged or excluded Consider negotiating modifications If you have a high-value personal asset to protect (homestead, retirement), discuss with a business attorney Releasing the guarantee after the loan is paid After full loan payoff: Confirm in writing that the loan is satisfied Some guarantees automatically terminate at payoff; others require written release For continuing guarantees, send a written termination notice to the lender Keep the termination acknowledgement permanently When you apply, note any specific guarantee concerns; we route to lenders comfortable with negotiated structures where possible.