# Personal guarantee vs corporate guarantee

> A personal guarantee makes an individual personally liable for business debt (reaching personal assets including home equity, savings, future earnings); a corporate guarantee makes a separate corporate entity liable but does not reach individual owners — used in parent-subsidiary structures, holding company arrangements, and franchise lending.

Personal guarantees and corporate guarantees are two distinct credit-enhancement mechanisms used by lenders to extend liability beyond the immediate borrower entity. They serve different purposes, carry different legal effects, and create different risk profiles for the parties involved.

**Personal guarantee — the mechanism.** An individual (typically the business owner) signs a contract personally promising to pay the business's debt if the business defaults. The guarantee is "unlimited" (no dollar cap) or "limited" (capped at a stated amount). The guarantor's personal assets — home equity, brokerage accounts, savings, future wages — become available to satisfy the guarantee in default.

**Corporate guarantee — the mechanism.** A separate corporate entity (typically a parent company, affiliate, or holding company) signs a contract corporately promising to pay the borrower's debt if the borrower defaults. The guarantor entity's assets become available; the entity's individual owners do not, unless they separately sign personal guarantees.

**When each is used.**

**Personal guarantees are required for:**
1. **MCAs.** Universally required from all 20%+ owners.
2. **SBA loans.** Required from all 20%+ owners (with spousal-signature overlay; see related entry).
3. **Equipment finance.** Often required, particularly for newer businesses or smaller transactions.
4. **Business credit cards.** Universally required.
5. **Business lines of credit.** Generally required for smaller LOCs (<$1M); negotiable for larger.
6. **Lease guarantees.** Commercial real estate landlords often require personal guarantees from tenant owners.

**Corporate guarantees are common in:**
1. **Parent-subsidiary lending.** Operating subsidiary borrows; parent guarantees with parent's broader balance sheet.
2. **Holding company structures.** Multi-entity businesses with central HoldCo and operating subsidiaries.
3. **Franchise lending.** Franchisor guarantees franchisee debt (less common in 2026; most franchisors decline).
4. **Joint venture financing.** Each JV partner's corporate entity guarantees the JV's debt.
5. **Acquisition financing.** Acquirer entity guarantees acquired entity's existing debt during transition.

**The legal effect comparison.**

**Personal guarantee effects.**
- Reaches all personal assets including home (subject to state homestead exemption — see below).
- Reaches future earnings via wage garnishment (where state law permits).
- Reaches retirement accounts in some states (ERISA-protected accounts generally protected federally).
- Survives bankruptcy of business — but may be discharged in personal bankruptcy.
- Survives divorce — guarantor remains liable regardless of divorce decree.

**Corporate guarantee effects.**
- Reaches assets of the guarantor entity only.
- Does not reach individual owners unless veil-piercing is successfully argued (rare, high bar).
- Subject to bankruptcy of guarantor entity.
- May be impaired by intercompany transfers, dividends to owners, or capital changes — careful structuring required to preserve guarantee value.
- Often supplemented by financial covenants restricting guarantor's leverage, distributions, or asset sales.

**The homestead exemption — state context.** When personal guarantees are enforced, state homestead exemptions limit how much home equity is reachable:
- **Florida.** Unlimited homestead exemption (one of two states with full unlimited homestead) for primary residence, subject to acreage limits. A Florida resident guarantor's primary home is generally protected from personal guarantee enforcement — a major asset-protection advantage.
- **Texas.** Similar unlimited homestead protection (the other state with full unlimited homestead) subject to acreage limits.
- **California.** Homestead exemption increased to $300K–$600K (county-dependent) in 2021; substantially below unlimited but materially protective.
- **New York.** Homestead exemption ranges $89K to $179K (county-dependent in 2026).
- **Most other states.** Homestead exemptions range from $0 (very rare) to $250K, typically $50K–$100K.

**Practical implication.** A Florida or Texas merchant with substantial home equity faces materially less personal guarantee risk than a California or New York merchant with equivalent equity. This drives some asset-protection planning where business owners relocate to FL/TX before taking on significant guaranteed debt.

**Subordination and inter-creditor issues.** Multiple guarantees create priority questions:
- **First-perfected secured creditor** has senior claim on collateral.
- **Personal guarantee priority** depends on filing of judgments and asset attachments after enforcement.
- **Corporate guarantee priority** follows secured/unsecured structure of the guarantee agreement itself.

**Continuing guarantee vs specific guarantee.** A continuing personal guarantee covers all current and future obligations of the borrower to the lender — including new advances, refinances, modifications. A specific guarantee covers only the named transaction. Most MCA guarantees are continuing — meaning a merchant guaranteeing the first MCA also guarantees the second renewal and any subsequent advance from the same funder unless the guarantee is formally terminated.

**Release of personal guarantee — when and how.**
1. **Full payoff and termination request.** Upon full payoff of the underlying obligation, the guarantor should request a written release of personal guarantee from the lender. Many lenders do not automatically release; written request is required.
2. **Sale of business.** Sellers often request guarantee release as a closing condition. Lender consent typically required and not guaranteed; some lenders require ongoing guarantee for 1–2 years post-sale to ensure transition stability.
3. **Substitution of guarantor.** Lender may accept substitute guarantor (e.g., new owner) in exchange for release of original guarantor. Negotiation-dependent.
4. **Refinance.** Refinancing the underlying obligation with another lender typically releases the original guarantee but creates a new guarantee with the refinancing lender.

**The MCA context.** MCA personal guarantees are standard and universally required. Corporate guarantees are rare in MCA — funders prefer direct personal liability and the simpler enforcement path. Multi-entity merchants (holding company + operating subsidiary) sometimes negotiate operating-subsidiary-only borrower with HoldCo corporate guarantee, but most MCA funders require both HoldCo corporate guarantee AND owner personal guarantees.

**Common confusion.** First, "the LLC protects me from the personal guarantee" — it does not; the personal guarantee is a separate, parallel obligation that pierces the LLC's liability shield. Second, "the corporate guarantee is functionally the same as a personal guarantee" — it is not; corporate guarantees do not reach individuals absent veil-piercing. Third, "my personal guarantee ends when I sell the business" — it does not unless the lender formally releases.

## Related terms

- [Personal guarantee (PG)](https://fundnode.co/llms/glossary/personal-guarantee) — A clause making the business owner personally liable if the MCA defaults. Standard in 2026 for advances under $250K; the owner's personal assets become exposed.
- [SBA personal guarantee spousal signature rules](https://fundnode.co/llms/glossary/sba-personal-guarantee-spousal-rules) — All SBA loan owners with 20%+ equity must sign unlimited personal guarantees; spouses of guarantor-owners must sign IF community-property state laws apply OR if collateral is jointly owned — but ECOA prohibits requiring spousal guarantee based on marital status alone.
- [MCA collateral vs personal guarantee](https://fundnode.co/llms/glossary/mca-collateral-vs-personal-guarantee) — MCA collateral = UCC-1 lien on business assets (receivables, equipment, inventory). Personal guarantee = owner's personal liability for the debt. Most MCAs have both — UCC for business recovery, PG for personal recovery.

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Document: Personal guarantee vs corporate guarantee — Fundnode MCA Glossary
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