Personal Guarantee (PG)
A personal guarantee is a contractual commitment by a business owner to be personally responsible for repayment of an MCA if the business fails to perform — extending creditor recovery rights beyond business assets to the guarantor's personal assets including bank accounts, real estate, and wages.
Why This Matters
Personal guarantees are mandatory in virtually all MCA agreements. Without PG, recovery against a defaulted business with limited assets is nearly impossible. PGs let funders pursue owner personal assets in default scenarios — bank account garnishment, real estate liens, wage garnishment from other employment, judgment domestication across state lines. Combined with UCC security and (where available) COJ provisions, PGs give funders robust collection mechanisms. The implications for merchants are significant: PG creates personal liability beyond the business entity, often surprising new MCA borrowers who assumed corporate-only exposure.
Example
Merchant operates as LLC, takes $60K MCA with personal guarantee from owner. Business defaults; LLC has $5K in assets. Without PG, recovery limited to $5K. With PG, funder pursues owner personally: garnishes personal bank account ($8K), files lien against personal residence ($45K equity), pursues wage garnishment from owner's W-2 employment ($1,200/month). Total recovery dramatically improved by PG.
Frequently Asked Questions
Frequently Asked Questions
Are personal guarantees enforceable in all states?
Yes — PGs are standard contract law and enforceable in all US jurisdictions. Defenses (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 get an MCA without a personal guarantee?
Rarely. PGs are contractually mandatory at virtually all MCA funders. Larger commercial finance products (asset-based lines, equipment finance, SBA loans) sometimes accommodate non-recourse structures, but for MCA specifically, expect to sign a PG.