Personal guarantee is a promise made by an entrepreneur to personally repay the company debts in the event of default by the business. Personal guarantees are a way for banks to protect themselves, and their depositors, against unscrupulous business owners. It tells the bank that the business owner is serious about their business and about repaying their debts. One of the downsides to personal guarantees is that even if a business owner is extremely careful in paying their business debts, unforseen events can still prevent a business from making a loan payment. When the owner is unable to cover the debts personally, the bank will start to seize personal assets.
In order to avoid a personal guarantee, it is important to show banks that your business can stand on its own. Having excellent business credit is a great way to avoid having to sign a personal guarantee. If the bank sees your business is growing in size and revenue, they might be willing to waive the personal gurantee as well.