A personal guarantee is a secondary promise by an individual to repay a debt if the borrowing company defaults — it only becomes payable once the underlying obligation is established, not automatically on the strength of the guarantor’s signature alone.
The legal mechanics matter more than the label. Treadstone’s own answer on the point draws the line sharply: a guarantor “promises to pay if — and only if — the primary debtor fails to meet a valid, enforceable obligation,” and to collect, a creditor must first establish “the underlying debt exists, is valid, the debtor defaulted, and the guarantee’s own terms are met” — a materially higher bar than an indemnity, which pays out once the specified loss has simply occurred. As the same source puts it, “courts interpret a clause by its substance, not its heading.”
On the ground, Canadian acquisition lenders commonly ask for exactly this alongside registered security: deavo’s own list of what a vendor take-back lender coordinates around includes “personal guarantees from the buyer, and registration of security under the applicable province’s personal property security legislation.” That is a different thing entirely from a government loss-sharing guarantee: under the Canada Small Business Financing Program, the government backstops part of the lender’s own loss — a loss-sharing ratio capped at 85% of the lender’s eligible loss under section 8 of the Act — and that guarantee protects the lender, not the borrower; it is not a substitute for a personal guarantee the lender separately asks the buyer to sign.
The clearest route is scale: a fund financing through an institutional, fund-level credit facility is a different credit story than an individual buying with a bank loan behind them, and a senior lender satisfied by the target’s own collateral and cash-flow coverage has less reason to insist on an individual backstop. On a smaller, personally-financed acquisition, though, the lender’s ask for a personal guarantee is closer to the norm than the exception, and it is a negotiated term — capped, released on a schedule, or dropped — not a fixed rule.
See also: Senior secured term loan · Subordination agreement.
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